UK – The chief strategist at Merrill Lynch says fund managers have moved on from thinking about corporate pension deficits.

Managers “do not think about pension funds as they used to before”, David Bowers, the firm’s chief global and European equity strategist, said at a briefing.

But the gap between shareholders’ demands for higher capital expenditure – as opposed to the rebuilding of balance sheets, which includes sustaining pension funds - was reported to have “narrowed”, according to Merrill’s February survey of fund managers.

Thirty seven per cent of the 299 institutional investors polled said that they wanted firms to spend more. Improving balance sheets, at 29%, was the second choice, followed by returning cash to shareholders, at 21%.

Last August Merrill Lynch reported that 50% of global managers had mentioned solving corporate balance sheet problems as a claim to a company’s cash flows, which this month have been “near all time lows.”

Risk appetite has fallen - with 53% saying they were taking a higher than normal risk, down four percent from last month’s record high.

“Expectations for a recovery,” Bowers said, “are off their best”, with 65% of managers thinking the global economy will be stronger in a year’s time. This was “the lowest since May”.

In this month’s survey, Bowers stressed, a new question has been introduced to gauge managers’ perception of the markets’ developments – the “Merrill Lynch barometer”.

Fifty percent of managers said the economy was at the mid part of the cycle, with 38% seeing early-cycle and nine per cent late-cycle.

The new question was also asked to monitor the market. Equities are seen by 60% of managers as in the mid-cycle phase, with 64% of the panel seeing them at “a fair value”, for per cent more than last month.

“Sixty per cent of the panel thought that the stock market was positioned at the mid-point of its cycle, too late to chase the early-cycle plays and too early to buy the late.”

Bond are “expensive” according to the panel- 70% perceives bonds as overvalued but 35% believes corporate bonds to outperform government ones, three per cent more that those who believe the contrary.

“If we are going through a classic economic cycle, we are nearly half way through it”, Bowers said, but added that “Merrill Lynch’s view is that something different has happened.”

The survey found that 95% of European fund managers see a stronger European economy over the next year – and it also found that monetary policy was seen as too restrictive.

Equities were seen as undervalued while a net 49% though the strategic case for owning equities was growing stronger.

Meanwhile the State Street investor confidence index for February fell by 3.7 points to 94.9 from January’s revised reading of 98.6. And investor confidence in Germany, as measured by the ZEW economic institute declined to 69.9 from 72.9 in January.