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Bringing you news, views and analysis since 2013

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Increasing number of investors view major asset classes as overvalued

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The number of investors and analysts that view developed market equities, government bonds and corporate bonds as overvalued has increased from quarter three 2013, according to the CFA UK Valuations Index.

The change is most evident for government bonds and developed market equities.
 
The proportion of UK based investment professionals who believe that developed market equities are overvalued has increased in the last quarter with 44 per cent of respondents rating developed market equities as either overvalued or very overvalued, compared to 37 per cent in the last quarter. There has also been a decrease in those viewing the asset class as undervalued or very undervalued, from 27 per cent in Q3 to 22 per cent in Q4.
 
As has been the case for the last two years, government bonds remain the most overvalued asset class, with 78 per cent of respondents rating them as somewhat overvalued or very overvalued, an increase of five per cent from the last quarter. There has also been a three per cent drop in the number of respondents who view the class as undervalued or very undervalued (six per cent) compared to last quarter. Corporate bonds are also still viewed as overvalued, with 66 per cent of investment professionals viewing them as such, up from 64 per cent in the last quarter.
 
Sentiment towards gold is broadly unchanged, with the proportion of investors viewing it as undervalued unchanged and those viewing it as overvalued increasing by two per cent to 48 per cent.
 
Will Goodhart, chief executive of CFA UK, says: “During Q3, there had been signs that our members believed we were moving towards a normalised market, with the diversity of investor opinion over the valuation of different asset classes narrowing. The final quarter of 2013 marks a reversal of this trend, with the perception that asset classes are overvalued rising across the board, most markedly in developed market equities and government bonds. It appears that members see the stimulative central bank monetary policies as having inflated asset values broadly with most respondents to this quarter’s survey feeling that they are only properly paid to take risk in emerging market equities.”

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