Corporate bonds could be due for a setback as fund managers want companies to increase their capital expenditure.

Fund managers are showing an increasing preference for companies to start borrowing and spending again, while the number who want companies to repair their balance sheets is falling.

Nearly two thirds of fund managers want companies to increase capital expenditure according to the latest global survey of 218 investors by BofA Merrill Lynch, up from 11% in March.

Slightly more want to see companies concentrate on repairing their balance sheets - a total of 36% - but the figure is much lower than the 71% recorded in March.

With increasing capital expenditure likely to become the dominant preference among investors, equities could be due a boost, while corporate bonds may see a downturn in performance.

‘The last time we saw a shift towards prioritising cap ex ahead of balance sheet repair was in 2003 and it served as a clear buy signal for equities,’ said Gary Baker, head of European equity strategy at BofA Merrill Lynch Global Research.

‘It could signal the transfer of risk from equity to credit,’

When companies are concentrating on repairing their balance sheets and are paying down debt, it improves their ability to service their bond-holders.