Almost all investors expecting Europe-wide recession this year

As many as 95 per cent of investors expect there to be a recession in Europe over the next 12 months, the highest level since the height of the financial crisis in 2008, according to the latest Bank of America European Fund Managers’ survey.

The research said 74 per cent of investors are predicting the recession will be worldwide, while 83 per cent of respondents believe the energy shock and tightening credit conditions will lead to a further loss in European growth momentum.

Half of investors expect US growth to slow further in response to tightening by the Federal Reserve (up sharply from 26 per cent last month), while 68 per cent believe China’s growth is unlikely to improve.

Seven out of 10 investors think demand destruction will be the main macro theme over the coming months, up from 66 per cent last month. Only 8 per cent think supply constraints will dominate.

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Almost half of respondents expect the macro cycle to trough in the second quarter next year, while only 8 per cent think it will happen this year.

The proportion of investors that see high inflation as the biggest tail-risk for markets has faded from 36 per cent last month to 27 per cent, though this still makes it the most prominent concern ahead of worsening geopolitics, at 19 per cent.

More than half of investors see upside for European equities over the coming 12 months with the share seeing 5 per cent or more downside pared back from 29 per cent last month to 18 per cent.

However, 70 per cent of investors believe there is a risk of higher real bond yields in response to hawkish central banks.

A quarter of investors still regard not having enough defensive hedges as the main risk for their portfolios.

Some 43 per cent of participants view banks as an attractive vehicle to position for higher interest rates despite a slowing growth backdrop, up from 26 per cent last month. Property remains the most unloved sector, followed by construction and retail.