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Will Goodhart, CFA UK

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Investor confidence in emerging markets down, says CFA

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Investors are less confident that they can find value in emerging market equities than previously, according to the CFA UK latest quarterly Valuations Index, which measures investors’ perceptions of the values of bonds, equities and gold in Q4 2017.

The survey reveals that only 36 per cent believe emerging market equities to be undervalued, which is 5 per cent fewer than in Q2 and Q3 2017. Meanwhile, the proportion of respondents believing emerging market equities to be fairly valued also dropped from the previous quarter, from 35 per cent to 33 per cent. This follows a rise of nearly 3 per cent in the value of emerging market equities between Q3 and Q4 2017. 
 
At the same time, developed market equities continue to be considered overvalued by the vast majority of investors (73 per cent).  
 
Nevertheless, investor confidence in gold is increasing. Almost three quarters of investors polled (74 per cent) now consider the mineral to be either fairly valued or undervalued, compared to 69 per cent in the previous quarter. The result reflects a significant drop of more than $90 in its value since the last Valuations Index in Q3 2017.
 
The perception of corporate bond overvaluation also continues to decline after reaching an all-time high in Q2 2017 at 84 per cent. Having fallen to 82 per cent in Q3 2017, it decreased slightly again to 79 per cent in the last quarter of the year.
 
Though remaining high at 78 per cent, the proportion of respondents identifying government bonds as overvalued also continues to steadily decrease, returning to the same level as in Q1 2017.
 
Will Goodhart (pictured), chief executive of CFA UK says: “The respondents to our survey are still worried. Most believe bonds and developed market equities are overvalued and, following their run up over the past few quarters, fewer now believe that emerging markets equities are undervalued. The increased interest in gold suggests that respondents are looking for a store of value should their fears be realised, though it’s also important to recall that our survey ran late last year, a time when the gold price had fallen steadily for a quarter and was starting to run back up. Overall, our survey suggests that while market returns remain impressive, so too do the anxiety levels about the sustainability of those returns. For the time being at least, we go on climbing the wall of worry.”
 

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