Investor perception of corporate bond overvaluation declines after reaching all-time high last quarter

Friday 17 November 2017

  • Proportion of respondents believing corporate bonds to be overvalued drops for first time in six quarters
  • Perception of developed market equities as overvalued on the rise
  • Emerging market equities continue to provide the best value according to survey respondents


CFA UK has today released the results of its latest quarterly Valuations Index, measuring members’ perceptions of the values of bonds, equities and gold in Q3 2017.


The results point to a more positive outlook for investments, with perceptions of bond overvaluation decreasing from previous heights.


After rising consecutively for the five previous quarters to an all-time high, the proportion of respondents who consider corporate bonds to be overvalued has dropped marginally, from 84% in Q2 2017 to 82% in Q3 2017.[1]


Equally, there has been a slight reduction in the proportion of investors perceiving government bonds as overvalued, from 82% to 79%.


Developed market equities, however, are now seen as overvalued by 74% of respondents, marking an increase of 5% from 69% in Q2 2017. This result reflects the broad increase in equity market valuations over the period.


Investors continue to find the best value in emerging market equities. Consistent with the last quarter, 41% of respondents indicated that they feel emerging market equities are undervalued, whilst 35% also said they consider them to be fairly valued.


The value of gold, meanwhile, continues to divide opinion. Whilst 45% perceive gold as fairly valued, 30% consider it to be overvalued and the remainder see it as undervalued.


Says Will Goodhart, chief executive of CFA UK: “Central banks continue to communicate their intent to wind back the monetary accommodation put in place since the financial crisis. In the US, UK and Canada overnight rates are already increasing and the markets are pricing in rate hikes in many other countries through 2018. Given the inverse relationship between interest rates and bond prices, it’s therefore unsurprising that survey respondents remain worried about bond valuation, even if their anxieties are diminishing as yields move in the anticipated direction. Emerging market equities remain the silver lining in the survey, despite rallying more than 30% over the last year.”   




Notes to editors:


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About the Valuations Index


The Q3 Valuations Index survey closed on 18 October 2017. Investors polled were asked to give their perceptions based on the following values: developed market equities (represented by MSCI Developed Market Index), $1989.08 at close 25 September 2017; emerging market equities (represented by MSCI Emerging Markets Index), $1090.10 at close 7 September 2017; government bonds (represented by J.P. Morgan Global Government Bond Index), yield 1.3% at close 7 September 2017; corporate bonds (represented by S&P International Corporate Bond Index), yield 1.61% at close 26 September 2017; and gold (represented by the London spot fix), $1349.22 at close 7 September 2017. The survey was open to all CFA UK members and there was a total of 200 respondents.


The research is not intended to provide a bellwether for the investment climate, or indeed to dispute the notion that markets reflect fair value over the long-term. Over the long run, markets are efficient and investors broadly rational. However, at any single point in time, markets can temporarily depart from fundamental value - our research indicates which asset classes our members think may no longer offer significant value, based on current prices, and others where there might be more value for new investments.


About CFA UK

Part of the worldwide network of member societies of CFA Institute, CFA UK represents the interests of 11,600 investment professionals in the UK.



[1] All percentages have been rounded to the nearest whole digit