Institutional fund managers no longer see word stock markets as cheap, rather they view them as being fairly valued, according to the latest Merrill Lynch Global Fund Managers Survey released Tuesday.

The report by Merrill chief global investment strategist David Bowers noted, “Though there are modest signs that confidence is returning to the market, fund managers won’t jump back into equities until there is a decisive upturn in the world economy. There is little sign of this, particularly in the economies of Europe.”

He also said that fund managers think we are stuck in a low growth environment and the stubbornly poor performance of Eurozone economies is one factor sapping confidence. “Before fund managers end their love affair with bonds and switch into equities they need to see much more compelling evidence for an upswing in the world economy.”

Half the fund managers participating in the survey see world stock markets as fairly valued, reversing 12 straight months in which a majority of fund managers described equities as cheap, Merrill reports. In addition, 66% of fund managers now believe the equity market to be overbought in the short term.

And, fund managers no longer have any excess cash. Merrill says that the average cash balance slumped to under 4% in June and 60% of respondents are now underweight cash or have a neutral position. This is the most fully invested fund managers have been in the past two years. “But, even though a third of fund managers believe bonds to be overvalued, bond prices have not fallen and are unlikely to do so until GDP growth expectations rise decisively,” it says.

The mean expectation for nominal GDP growth for the G7 area rose from 3.1% to 3.3%; and, there is renewed hope that top-line sales growth is strengthening; and a majority of respondents say their appetite for risk has returned to normal. “But these positive signals are outweighed by strong indications that a major shift in growth expectations has yet to take place,” Merrill says. “More than half the panel expects G7 GDP growth will be less than 3% and, though growth and profit expectations have risen, industrial and consumer price expectations are well below the levels seen last year.”