Survey finds risk aversion high among fund managers

Equity managers are also pulling money from the stock market and holding it in cash, unable to find sure-fire growth stocks. An average 4.7% of portfolios is now in cash, a rise of 80 basis points from January.

A net 41% of asset managers are overweight cash, which is the highest figure since the terrorist attacks of September 11, 2001.

More than a quarter of investors now believe a recession is either likely or very likely, up from 19% in January and almost three times the 10% who thought so in October.

David Bowers, an independent consultant who conducts the research for Merrill Lynch, said: "Risk aversion is so extreme and cash levels are so high, that the challenge is now to identify the catalyst that prompts money to return to the stock market."

The survey, which covered fund managers with a combined $587bn (€403bn) in assets, suggested investors think equities are fundamentally cheap but are fearful of the credit crunch's impact on corporate health and the wider economy.

The number of respondents who forecast a deterioration in corporate profits over the coming 12 months has risen to a net 68%, up from 57% in January. But a net 25% of managers still believe stocks are undervalued.

February's survey also raised the specter of stagflation. In fact, two thirds of the fund managers said the markets face above average inflation and below-trend growth.