The survey, completed by fund managers as global equity markets fell in value by 18.7% (Oct. 3 to 9), shows that almost seven out of 10 respondents (69%) believe that the global economy has entered recession. That number is up sharply from 44% one month ago, according to a press release from Merrill Lynch. “In our view, however, it is too soon to say we have reached a bottom in equity markets given the current financial market turmoil,’ said Sheryl King, senior U.S. economist at Merrill Lynch, in the release.

The proportion of investors who believe that monetary policy is too restrictive has reached a net 59%, representing a new high for the survey, according Merrill Lynch. However, the firm said low risk appetite and a belief that equities are undervalued could provide the foundations for a rally. Because of growing risk aversion, 49% of respondents are overweight cash. The number of respondents who believe equities are undervalued has reached a 10-year high, at 43%, Merrill Lynch said.

“Fund managers are waiting for the triggers that will give them the confidence to buy,’ said Gary Baker, head of EMEA equity strategy at Merrill Lynch, in the release. “What they are looking for is a loosening of monetary conditions and for third quarter earnings to clarify where problems and opportunities lie across equity markets.’

Merrill Lynch said third quarter earnings season will be a vital input to investors’ portfolio decision making and to gauging how the financial crisis has impacted the real economy. Fund managers appear to be placing little or no credibility in consensus earnings estimates for the year ahead. A net 92% of respondents regard estimates as “too high,’ and more than half say estimates are “far too high,’ according to the survey.

A total of 172 fund managers participated in the global survey, managing a total of U.S. $531 billion, and a total of 150 managers participated in the regional surveys, managing U.S. $335 billion. The survey was conducted with market research company Taylor Nelson Sofres.