The latest Merrill Lynch survey of fund managers worldwide paints the gloomiest picture in terms of sentiment since the monthly poll was launched in 2001. Others wonder, however, if the bearishness should be seen as a signal to buy instead of retreat further into cash or the money market.

The survey shows the worst outlook for corporate profits among global fund managers since the survey began. A net 68% of respondents expect corporate profits to deteriorate over the next 12 months. Merrill Lynch, which conducts the survey through research group Taylor Nelson Sofres, measures net responses by taking the balance between the bullish and bearish views for each survey question.

Investor confidence in ChinaÆs growth has fallen to an all-time low, with close to 50% expecting the mainlandÆs economy to weaken over the next 12 months. China was among the bright spots in the survey in past months, with fund managers previously remaining optimistic about the mainlandÆs growth prospects despite concerns over a US-lead global recession.

The global fund managers surveyed are generally underweight in both equities and bonds, the first time this has happened since 2003.

One of the more telling indicators of current sentiment among the global fund managers is the 41% of the respondents that say they are overweight cash. ThatÆs the highest level since October 2001, a month after the September 11 terrorist attacks in the US caused global fund managers to take a more cautious stance in general.

During times of uncertainty, fund managers, like most investors, tend to stay as liquid as possible so they can react easily to unexpected developments.

After aggressively staying overweight in global emerging markets, global fund managers have scaled back their holdings in those markets.

Fund managers that invest in global emerging markets û as opposed to those who invest in both developed and emerging markets û are also the most pessimistic they have been since they were surveyed independently in 2007. A net 64% of the global emerging markets fund managers say they expect corporate profits to slip over the next 12 months.

For the first time since the survey was conducted, Asia has become the least preferred emerging market among these fund managers, with the region knocked off its number one spot by Latin America.

Global emerging market fund managers are most bullish over Russia and Brazil and most bearish over China and India. They are most overweight on telecommunications, consumer staples and consumer discretionaries; and most underweight on technology, materials, utilities, and financials.