Fund managers around the world are increasingly concerned by the weakness of the global economy and doubtful of corporate profit growth, though their fears about inflation have diminished somewhat, according to a recent survey from Merrill Lynch.

Merrill Lynch’s survey of global fund managers for July shows a steady trend toward pessimism about the economy worldwide, with a net 10% expecting the economic situation to “get a little weaker” or “get a lot weaker” over the next year. In June, a net 9% expected the opposite — that the economy would “get a lot stronger” or “get a little stronger.” Back in April, a net 34% expected positive developments.

“The euphoria we saw at the beginning of the year about the world experiencing a synchronized, cyclical recovery has disappeared,” said David Bowers, chief global investment strategist at Merrill Lynch, in a news release. “While it doesn’t feel like a recession is around the corner, fund managers are clearly less confident that the recovery can be sustained.”

A net 2% of investors surveyed expect corporate profits worldwide to improve over the next 12 months, down from 11% in June, 26% in May and 47% in April.

One of the very few exceptions in an otherwise cautious world is investors’ attitude towards Japanese equities and the yen, where sentiment has been improving steadily. A net 47% of asset allocators are currently overweight the Tokyo stock market. A net 40% of fund managers said the outlook for Japanese corporate profits is the most favorable worldwide.

“The strong view on Japan is somewhat surprising,” said Bowers. “If you believe the world economy is weakening, then Japan is an unusual place to hide given that many of the companies there tend to be driven by cyclical factors.”

Meanwhile, U.S. stocks are increasingly out of favor, with a net 30% of asset allocators underweight, and 43% of the panel picking the U.S. as the region they would most like to underweight over the next 12 months. That is the worst rating for American equities since corporate scandals were raging in early 2002.

Looking closer at the expectations for inflation and monetary policy, fewer fund managers are worried about rising prices, with 72% expecting inflation to be “a lot higher” or “slightly higher” globally over the next 12 months, down from 87% in June.

Despite the diminishing inflationary concerns, bond markets are still seen as overvalued, although by a smaller margin, with 49% judging them expensive this month, down from 54% in June. In a possible sign that diminished growth expectations might be leading to concerns about credit quality, a net 15% of managers think government bonds will outperform corporate and/or high yield bonds over the next 12 months.