The proportion of investment professionals that find Corporate Bonds overvalued has reached its highest level since the CFA Society of the UK’s (CFA UK) Valuations Index was introduced three years ago.
Some 76 per cent of respondents to the index, which polls the opinions of CFA UK’s 11,000 investment professional membership, consider Corporate Bonds as very overvalued or somewhat overvalued, an 11 per cent increase on Q1 2014. Furthermore, the proportion of investors who view the asset class as undervalued has fallen to its lowest level since the index began, halving year on year to 5 per cent.
Government Bonds continue to be perceived as the most overvalued asset class according to 81 per cent of investors. The number of investment professionals viewing them as undervalued or very undervalued has more than halved since Q4 2014, down to just 3 per cent.
Meanwhile, the view of Developed Market Equities has changed markedly since the last quarter. The proportion of respondents who regard them as overvalued has leapt 10 per cent to 52 per cent, whilst the number who sees them as undervalued has fallen from 23 per cent to 18.
Emerging Market Equities maintains its position as the only asset class regarded as undervalued with 43 per cent of investment professionals holding this view; however this proportion has fallen 16 per cent year-on-year from 59 per cent.
Will Goodhart, chief executive of CFA UK, says: “QE has supported increases in asset values by depressing the rate at which future cash flows are discounted and by encouraging growth thereby improving the outlook for earnings. Our most recent survey’s results suggest that investment professionals feel that the prospects for additional benefits from QE may be limited. The overall picture suggests that investment professionals see the search for returns as becoming even more challenging. The perceived lack of value in Developed Market Equities is coupled with an overwhelming consensus that bonds – sovereign and corporate – are overvalued. We are now in a situation where some Government Bonds offer negative yields. For pension funds and insurance companies – constrained by regulatory, actuarial and accounting requirements and required to hold these assets – the prospect of a long period of low returns will be a concern.”
