Investors remain unconvinced that a spate of policy measures from governments and central banks can combat global recession, leading them to remain defensive, according to Merrill LynchÆs latest monthly survey of fund managers.

The survey shows that four out of five investors believe that the world will continue to experience recession over the coming year. Policymakers have offered fiscal stimulus packages, liquidity and interest rate cuts, but investors are not yet ready to give their policies the benefit of the doubt, according to Merrill Lynch.

Around 40% of the respondents still believe that monetary policy is ôtoo restrictiveö and asset allocators remain overweight cash and bonds relative to equities.

ôInvestors remain embedded in a defensive asset allocation mindset. Many acknowledge the global policy response seen in recent weeks, but fear of deflation may be keeping them on the sideline,ö says Gary Baker, head of Europe, Middle East, and Africa equity strategy at Merrill Lynch. ôThis could start to look risky as the determination of government fiscal responses allied to further monetary easing starts to play through into sector preferences.ö

The survey shows that US and Chinese equities are favoured despite the economic outlook for those markets. It shows that fund managers continue to expect global equity markets to struggle with high levels of risk aversion and currency market volatility. It shows that fund managers believe û for the first time in five years û that the Japanese yen is overvalued.

ôThe yen is a global barometer of risk appetite. Its strength is a sign investors remain very risk averse,ö says Michael Hartnett, chief emerging markets equity strategist at Merrill Lynch. ôEquity investors are turning to US equities, where the outlook for corporate profits is the most favourable.ö

Meanwhile, concern about the macroeconomic outlook for China is evident in the survey results. A net 85% of respondents who focus on Asia or emerging markets expect the Chinese economy to weaken in the next 12 months. Still, Asian and emerging market fund managers favour China over any other country in their universe and have been moving into the market in force. A net 67% of regional respondents are overweight Chinese equities, up from an underweight position just three months ago.

ôChina is currently seen as the sole Asian beneficiary of policy stimulus and falling oil prices,ö says Hartnett.

Fund managers that invest in global emerging markets û as opposed to those who invest in both developed and emerging markets û favour China, Turkey, Russia and Thailand. They are most bearish over Korea, Chile, Taiwan and Poland.

In terms of sectors, global emerging markets fund managers are most bullish over telecommunications, consumer staples, and healthcare. They are avoiding materials, technology and utilities.

A total of 180 fund managers participated in this monthÆs global survey, which was conducted from November 7 to 13. Combined, these fund managers manage $536 billion in assets.

Meanwhile, a total of149 managers participated in the regional survey, with a combined $334 billion in assets under management.

The survey was conducted with the help of market research company Taylor Nelson Sofres (TNS). The survey measures net responses by taking the balance between the bullish and bearish views for each survey question.