Fund manager survey finds expectations of global recession on the rise

In a press release, Merrill Lynch states:

"The biggest sectoral swings from August to September were out of basic resources and chemicals stocks – both recognized as high-risk sectors in a downturn. A net 37 percent of respondents to the European survey are underweight Basic Resources, reflecting a collapse of 47 percent from an overweight of 11 percent just one month. Food & Beverages, a sector most negatively correlated to risk appetite over the past two decades, is seen as a safe haven and saw the biggest upswing. A net 2 percent of investors are underweight the sector now compared with a net 26 percent who were underweight in August."

Other findings include:

• Nearly one in four (24 percent) hedge funds surveyed said that they have a net short equities position, compared with 6 percent who held net short equities positions in August.
• At the same time hedge funds are reducing, or being forced to reduce, their leverage. The weighted average ratio of gross assets to debt fell from 1.2 times in August to 1.0 times in September. More than half of respondents to the question have a leverage ratio of less than 1.0 times.
• Investors have moved to their largest underweight position in emerging market equities since 2001, thanks to falling commodity prices, global growth concerns and residual inflation fears in emerging market economies.

A net 62 percent of respondents expect the Chinese economy to weaken over the next year.