‘Green Shoots’ Appear Amid Bearish Investor Sentiment: Merrill Survey

Investors’ risk appetite remained subdued in October, Bank of American Merrill Lynch reported Tuesday in releasing its latest global fund manager survey.

Thirty-one percent of survey participants said they expected a recession over the next year, while 67% did not foresee one.

Investors’ growth expectations fell nine points from the September survey to net 37% expecting global growth to weaken over the next 12 months: 9% said growth would get a lot weaker; 53% said a little weaker; 13% said it would stay the same; 23% said it would get a little stronger; and 1% expected it to get a lot stronger.

Global corporate profit expectations remained bearish, with net 35% of investors saying they expected deterioration over the next 12 months. Still, this was a 10-point improvement from September.

In this month’s survey, 43% of investors said they wanted corporates to spend cash on improving their balance sheets, while 39% preferred that they invest in capital expenditure and 14% wanted them to return cash to shareholders.

Trade war concerns were top of mind in October, cited by 40% of fund managers. Only about one in 10 mentioned other tail risks: monetary policy impotence, a bond market bubble and a credit event.

Forty-three percent of investors in the survey said the U.S./China trade war was the new normal and would not be resolved, while 36% expected a resolution before the 2020 U.S. presidential election.

“Investors remain bearish, but we are seeing signs of green shoots,” Merrill chief investment strategist Michael Hartnett said in a statement. “If concerns about the trade war and Brexit are unrealized, sentiment is likely to improve, validating our bullish tactical views.”

Three-quarters of investors said an end to the trade war would be the most bullish catalyst for stocks in the next six months.

Hopes for a Brexit agreement appeared to be on a “knife edge,” The New York Times reported Tuesday.