Concerns over the imminent end of quantitative easing (QE) in the U.S. have left investors much less confident in the outlook for the global economy and corporate profitability, according to the BofA Merrill Lynch Fund Manager Survey for October.

After a sharp fall of more than 20 percentage points from September, only 32% of respondents expect the global economy to strengthen over the next 12 months. This is the lowest reading in two years. Inflation and earnings expectations have slumped: recent consensus over the world experiencing both below-trend inflation and below-trend growth is even stronger this month at 77%.

Monetary policy underlies this shift in sentiment. Only 18% of fund managers now view policy as too stimulative, down 14 percentage points to the lowest level since August 2012—just before the last QE initiative in the U.S. Perceptions of monetary risk have also risen, along with emerging market risk.

Investors’ response has been to reduce riskier exposures. Cash balances have risen to 4.9%, while investment horizons have shortened and equity overweights have fallen rapidly (down 13 percentage points month on month). Underweights in commodities have also risen, while sectors sensitive to the asset classes like energy and materials have seen large moves to net underweight positions.

Respondents have lost their appetite for emerging markets and European equities. Both current positioning and intentions for the next 12 months have turned negative or neutral. Instead, they have regained faith in the U.S. market and increased their preference for Japan.

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