Fund managers are polarized in their outlooks for the global economy and corporate profits, since the terrorist attacks in the United, according to the latest Merrill Lynch Fund Manager Survey, which was released today.

Most fund managers surveyed still believe the global economy and profits will recover, but a growing number of institutional investors are widely split in their opinions. Of the 253 fund managers surveyed, almost a quarter said that they thought the economy would either be much stronger or much weaker in the next 12 months.

“The terrorist attacks in the U.S. have created a defining moment where fund managers need to hunker down for recession or take the plunge into cyclicals,” said David Bowers, Merrill Lynch global investment strategist.

Markets are expected to be higher in 12 months, according to the survey’s results and the Merrill Lynch Buy-Side Indicator. The ML Buy-Side Indicator shows net 69% of fund managers expect the market to move up, versus 74% in August, when the last survey was completed.

But the survey showed a major shift from U.S. equities to eurozone equities. Almost 25% of the managers polled said they now think U.S. equities will be the worst performing regional market over the next 12 months, compared to 16% in August. The U.S. was cited as the most overvalued market, while the eurozone was listed as the most undervalued market.

“The biggest concern of fund managers globally is coming to terms with the fact that some sectors will see lower growth,” Bowers said. “Some stocks, such as financials, have not taken on board the full impact of this slowdown, therefore, there is some uncertainty in the growth we would see from here.” Bowers said that currently Merrill Lynch is overweight in utilities, consumer staples and energy, and underweight in autos, telecommunications and technology.

The Merrill Lynch Fund Manager Survey reflects the views of 253 fund managers worldwide. The survey was conducted between October 4 and 12 with the help of Taylor Nelson Sofres.