BAML: Investors are freaking out about the rising prospect of a global recession

  • A global recession is now the biggest fear for credit investors, according to a survey by Bank of America Merrill Lynch.
  • Thirty per cent of those surveyed by the bank suggested recession was their most significant worry, the highest level for a single concern since June 2017.
  • Intriguingly, investors didn’t express concern with rising yields or inflationary pressures, with Brexit concerning only 2% of those surveyed.

Recessionary risks are flashing in the minds of both high-grade and high-yield investors with fears about growth front and center, according to a Bank of America Merrill Lynch survey.

Corporate bond markets took a tumble at the end of 2018, with volumes falling off a cliff amid market stress stemming from the US-China trade war and slowing global growth. These fears appear to have manifested themselves clearly in the minds of the 58 BAML clients surveyed, with global recession now the single largest worry in the investors’ minds.

Thirty per cent of those surveyed said a global recession was their biggest fear, the highest proportion of survey participants naming a single issue since the summer of 2017.

Read more: Here’s why the next recession could be unlike any the US has ever seen

Poor figures out of Europe, particularly in Italy and Germany, as well as worrying Chinese data have played on the minds of investors in recent months. Europe’s largest economy, Germany, only barely avoided a technical recession in 2018, with manufacturing, especially automotive, having difficulties.

Investors are also concerned with the US’s soon-to-be released fourth-quarter gross-domestic-product numbers, which are expected to show a decline in growth from the highs of 2018’s second quarter. The slowing global picture is a big problem for the US, which is increasingly vulnerable to the turmoil of other economies.

“Tighter economic and financial linkages today have likely increased the risk from foreign spillovers,” Goldman Sachs economists led by Jan Hatzius wrote in a recent client note.

Read more: 2 notorious recession signals are descending into the danger zone, and they have some Wall Street strategists convinced that a meltdown is fast approaching

Forty per cent of respondents said the key to lifting Europe out of its malaise was increased stimulus out of China. China’s own debt issues are well documented, but an improvement in the country’s import data, with particular reference to German cars, for instance, could help the ailing eurozone.

Investors have clearly become fatigued by the Brexit debate, with only 2% seeing Britain’s exit from the European Union as a key concern, while the apparent slowdown in the US Federal Reserve’s hiking agenda has led to a reversal in worries about rising interest rates.

BAML risk survey Bank of America Merrill LynchInvestor concerns tracked by Bank of America Merrill Lynch.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.