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Government Bonds viewed as currently overvalued by investment professionals

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Government Bonds are considered most overvalued relative to fair value on a one-year time horizon according to the CFA UK Valuations Index, a newly launched quarterly survey of UK based investment professionals by the CFA Society of the UK (CFA UK).

Asked whether Government Bonds currently represent fair value, 72% suggested that they are somewhat overvalued or very overvalued compared to only 12% who view them as somewhat undervalued or very undervalued. This contrasts with the views offered on Equities, where just 27% believe there is overvaluation. Developed Market Equities were deemed slightly more undervalued than Emerging Market Equities, according to 47% against 43% respectively.

Will Goodhart, chief executive of CFA UK, says: “Our research is not intended to provide a bellwether for the investment climate, or indeed to dispute the notion that markets reflect fair value over the long-term. Over the long run, markets are efficient and investors broadly rational. However, at any single point in time, markets can temporarily depart from fundamental value –  our research indicates which asset classes our members think may no longer offer significant value, based on current prices, and others where there might be more value for new investments.

“The current dislocations appear to be most likely attributable to the continued uncertainty about the global macroeconomic outlook and the prospects for inflation and interest rates.”

Opinions from respondents were mixed for the valuations of Corporate Bonds, with a relatively even split of responses citing them both as undervalued, fair value or overvalued. However, the results appear to suggest that Gold, a safe haven of 2011 is now relatively fully valued.

 

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