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Perception of developed market equities as overvalued reaches record high


The results of the CFA Society of the UK’s latest Valuations Index survey show that the proportion of respondents that find Developed Market Equities overvalued has reached the highest level since the Index was created 3 years ago. 

Some 61 per cent of respondents to the index, which polls the opinions of CFA UK’s membership of 11,000 investment professionals, consider Developed Market Equities as very overvalued or somewhat overvalued, a 17 per cent increase on Q1 2015 and a more than 24 per cent increase on Q2 2014. Indeed, the perception of Developed Market Equities as being overvalued has risen by almost 10 per cent for the last three quarters in a row. Furthermore, the proportion of respondents who view the asset class as undervalued has fallen to its lowest level since the index began, now standing at just 10 per cent.

Fears of a “Bond Bubble” remain; Perceptions of Government Bonds being overvalued has fallen very slightly but overall, the asset class continues to be seen as the most overvalued asset class according to 79 per cent of respondents. The number of investment professionals viewing them as undervalued, or very undervalued, remains low at just 6 per cent. Corporate Bonds similarly continue to be seen as overvalued by almost three quarters of respondents (74 per cent). The number of investment professionals viewing them as undervalued or very undervalued is just 11 per cent.

Meanwhile, despite broad view that the asset class is undervalued, the view of Emerging Market Equities seems to be changing with almost one third of respondents now seeing the class as being overvalued. The proportion of respondents who regard them as overvalued has leapt 25 per cent to 30 per cent, whilst the number who sees them as undervalued has held at 43 per cent.

With relative uncertainty surrounding the outlook for Bonds and Developed Market Equities, the “safe haven” of Gold is increasingly perceived, now by over 48 per cent of respondents, to be currently at fair value (48.80 per cent).

Will Goodhart, chief executive of CFA UK, says: “It appears that investors believe that the liquidity-assisted increases in asset prices that we’ve seen over the past few years have driven valuations in both equity and debt markets well ahead of fair value. Attempting to call a market peak is a fool’s errand, but the fact that a significant majority of respondents now regard developed market equities as overvalued means that there may be limited support for both equity and debt valuations in the face of potential increases in interest rates.”

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