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Will Goodhart, CFA UK

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Investors favour risk aversion and turn to safe haven assets

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CFA UK’s latest Valuations Index, which measures investors’ perceptions of the value of equities, bonds and gold, indicates a risk-off mentality amongst investors in Q2 2018, with those polled seeing most value in safe haven assets.

According to the Index, investors’ outlook on government bonds has improved compared to the previous quarter. Perceptions of overvaluation decreased 4 per cent, dropping from 80 per cent in Q1 2018 to 76 per cent in Q2 2018.[1] The yield of government bonds, meanwhile, increased slightly over the same period.
 
On the other hand, the Q2 2018 survey reveals that 4 per cent more respondents are struggling to find value in emerging market equities. Although more than two thirds of investors polled still believe emerging market equities are either undervalued or fairly valued, this is the second most bearish observation of the asset class since the Valuations Index began.
 
Investor’s views of developed market equities remain largely comparable with Q1 2018. Whilst the percentage of respondents noting overvaluation is considerably lower than the recent peaks in Q3 and Q4 2017 (74 per cent and 73 per cent respectively), at 64 per cent, it is clear that concern continues.
 
Perceptions of corporate bond overvaluation also remain very high, with 79 per cent of respondents now perceiving the asset class to be either somewhat or very overvalued. At 1.96 per cent, the yield is currently its highest since Q1 2016.
 
Gold, meanwhile, is seen as better value in Q2 2018 than ever before in the Valuations Index. Eighty percent of investors polled said they perceive gold as either fairly valued or undervalued, representing a 40 per cent increase since CFA UK’s first survey of investors in Q1 2012 and a 6 per cent jump from the last quarter.
 
Will Goodhart (pictured), chief executive of CFA UK, says: “Our survey suggests an overall decrease in risk appetite amongst investors. Respondents’ confidence in emerging market equites has declined, and investors are turning towards government bonds and gold. This shift is likely a response to global trade tensions and fears of increasing tariffs ultimately putting pressure on consumer prices. That gold in particular is now seen as better value speaks to investors’ anxiety about valuations in both equity and fixed income markets. Considered a safe haven and inflation hedge, gold may be a popular choice throughout 2018.”

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