Investor perception of developed market equity overvaluation drops 8% from previous quarter
But greater proportion of respondents see overvaluation of government bonds
Investors have most confidence in gold overall, though it continues to divide opinion
31 May 2018 – CFA UK today released the results of its Q1 2018 Valuations Index, measuring investors’ perceptions of the value of equities, bonds and gold.
The index reveals that confidence in developed market equities is slowly returning, after a high level of perceived overvaluation last quarter. Whilst the majority of investors polled still struggle to find value in this asset class, 8% fewer respondents now consider developed market equities to be overvalued, dropping from 73% last quarter to 65%. This is in spite of a 3% rise in the value of developed market equities since Q4 2017.
Emerging market equities are also increasingly promising for investors, according to the index. Seventy-three percent currently believe emerging market equities to be undervalued or fairly valued, increasing from 69% in Q4 2018.
However, having steadily declined since Q2 2017, the proportion of investors identifying government bond overvaluation has once again risen, reaching 80% this quarter. Nevertheless, within this category, more respondents now consider government bonds to be “somewhat overvalued” as opposed to “very overvalued”, marking a departure from the trend of the last three quarters. At 1.6%, the yield is currently at its highest across the same period.
The proportion of respondents considering corporate bonds to be overvalued is still in decline, after reaching an all-time high since the launch of the Valuations Index six years ago in Q2 2017. At 78%, however, it remains elevated.
As in Q4 2017, gold is the asset class in which investors have most confidence, with almost half of those polled considering it to offer fair value and an additional 24% considering it to be undervalued. Yet, opinions remain divided and the proportion of respondents believing gold to be overvalued slightly outweighs those believing it to be undervalued, by a 2% margin.
Says Will Goodhart, chief executive of CFA UK: “Global financial markets are currently experiencing a period of instability, as factors like the imposition of tariffs by the US, potential interest rate rises and geopolitical uncertainties all disrupt the normal state of play. The results of our index show that investors are feeling these pressures and looking for new investment strategies. The vast majority of our respondents consider bonds and developed market equities to be overvalued and, out of the core five asset classes included in our survey, now see gold as a more attractive option. Commonly seen as a safe haven during uncertain times, gold may become increasingly popular in the face of continued uncertainty about valuations and global stability.”
Notes to editors:
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About the Valuations Index
The Q4 Valuations Index survey closed on 25 April 2018. Investors polled were asked to give their perceptions based on the following values: developed market equities (represented by MSCI Developed Market Index), $2140.57 at close 27 February 2018; emerging market equities (represented by MSCI Emerging Markets Index), $1212.33 at close 27 February 2018; government bonds (represented by J.P. Morgan Global Government Bond Index), yield 1.6% at close 28 February 2018; corporate bonds (represented by S&P International Corporate Bond Index), yield 1.78% at close 28 February 2018; and gold (represented by the London spot fix), $1318.18 at close 28 February 2018. The survey was open to all CFA UK members and there was a total of 209 respondents.