More than a third (34 per cent) of investors have predicted a world-wide recession within the next 12 months, the highest proportion in eight years as trade war worries linger over global markets.

According to a survey conducted by the Bank of America (BofA) Merrill Lynch, this is the highest recession probability since October 2011 as 34 per cent of respondents forecast that two consecutive quarters of negative growth are likely in the year ahead.

Furthermore, in its August Fund Manager Survey, the BofA found that over half (51 per cent) of respondents stated the current tariff war between China and the US was the largest tail risk, while 15 per cent cited monetary policy impotence.

The survey revealed that 43 per cent of investors also expected lower short-term rates, while just 9 per cent predicted high long-term rates over the next year. Together, this is the most bullish survey conducted by the bank since November 2008.

Commenting, BofA Merrill Lynch chief investment strategist Michael Hartnett said: “Investors are the most bullish on rates since 2008 as trade war concerns send recession risk to an 8-year high.

“With global policy stimuli at a 2.5-year low, the onus is on the Fed, ECB and PBoC to restore animal spirits.”

A record net 50 per cent of investors said they were concerned about corporate leverage, while 46 per cent said they want corporates to use cash flow to improve balance sheets.

The report added that 33 per cent of investors cited corporate bonds as the “most vulnerable to a classic investment bubble”, given the current course of central bank policies. Government bonds come in second at 30 per cent, followed by US equities (26 per cent) and gold (8 per cent).

In addition to this, the report noted that Eurozone equities are “the big loser this month”, with 3 per cent of fund managers highlighting they are “underweight”, while net 33 per cent of investors said the Euro is cheap – the lowest level since 2002.

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