The majority of European investors expect Europe to fall into recession over the next 12 months, according to the latest Bank of America Merrill Lynch fund manager survey for September.
A net 55 per cent of European fund managers now expect Europe to slip into a recession over the coming year. Just 14 per cent of investors polled in survey shared the same concern in July.
The sovereign debt crisis is now considered the greatest risk by a net 68 per cent of respondents.
A net 38 per cent of global asset allocators are now underweight in European stocks while banks have registered their largest ever underweight position.
While a Euro-centric banking crisis has been priced in by investors, a global economic crisis has not, despite a lack of investor confidence in the outlook for both Japan and China.
The outlook for Japan also looks more subdued as a net 42 per cent of Japanese fund managers expect the economy to strengthen over the coming year, down from 75 per cent last month.
None of those polled expect Japanese corporate earnings to improve over this same period, down from 58 per cent in August.
The percentage of investors who expect the Chinese economy to weaken has also increased, from 11 per cent in August to 30 per cent in September.
Perhaps unsurprisingly, risk aversion has soared among investors to March 2009 levels as 45 per cent are now taking lower relative risks than the benchmark.
One third of investors are overweight cash, with an average holding of 4.9 per cent of portfolios, once again triggering the bank’s “buy signal” for equities.
An overall total 286 panelists with $831 billion (£526 billion) of assets under management participated in the survey from September 1 to 8.