By Jeremy Gaunt, European Investment Correspondent
LONDON, Nov 19 (Reuters) - Investors believe the global economy is now firmly in recession and that it is not going to come out of it for some time, a poll by Merrill Lynch showed on Wednesday.
As a result, fund managers are embracing defensive assets such as utility stocks, government bonds and cash, the monthly survey for November found.
But it also showed some slight indications of a levelling off of recent bearish trends.
"Last month we saw a very big capitulation trade," said Gary Baker, Merrill's head of EMEA equity strategy. "The results of this (new) survey are a) we are strongly in recession, we are not moving towards it and b) it is here to stay."
The poll showed that 84 percent of fund managers now believe the world is in recession., up from 69 percent on October and 44 percent in September.
At the same time, 67 percent said that the global economy would weaken over the next 12 months. Only 22 percent saw it improving.
The poll was taken between Nov. 7 and 13, a period when global stocks fell around 13 percent, oil plunged by a third and and the world's main commodities index <.CRB> fell 14 percent.
The Merrill data showed this was clearly reflected in investment positioning.
Investors were embedded in defensive stocks such as pharmaceuticals, consumer staples, telecommunications and utilities.
On a regional basis, equities investors also favoured U.S. stocks because of a better quality of earnings potential.
"I would call this a hunker-down trade," Baker said.
SIGNS OF LIFE?
Despite the overall gloom in the report, there were one or two signs for optimists to grab hold of.
The percentage of fund managers who were underweight equities dropped to 54 percent from 62 percent in October, for example, while those overweight in bonds dropped to 37 percent from 46 percent.
A run on emerging market equities also appeared to have levelled off with 30 percent underweight versus 36 a month earlier.
In currencies, meanwhile, more respondents said the Japanese yen was overvalued than said it was undervalued for the first time in the poll's history. Yen strength has been an indicator of global risk aversion.
Overall, Merrill's risk and liquidity indicator, drawn from the poll's findings, improved slightly.
These kinds of modest moves would mesh with State Street's investor confidence index, which was released on Tuesday.
That index hit a record low in November, but its decline was far less pronounced that the month before, perhaps suggesting a bottoming out. [ID:nLI447129] (Editing by Toby Chopra)