Investor confidence in emerging markets declines

Thursday 15 February 2018

  • Proportion of respondents believing emerging market equities to offer value drops 7% from previous quarter

  • Overvaluation of bonds begins to self-correct

  • Respondents increasingly see the potential of investing in gold

CFA UK have released the results of its latest quarterly Valuations Index, which measures investors’ perceptions of the values of bonds, equities and gold in Q4 2017.

According to the results, investors are less confident that they can find value in emerging market equities than previously. The survey reveals that only 36% believe emerging market equities to be undervalued, which is 5% fewer than in Q2 and Q3 2017.[1] Meanwhile, the proportion of respondents believing emerging market equities to be fairly valued also dropped from the previous quarter, from 35% to 33%. This follows a rise of nearly 3% 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%).  

Nevertheless, investor confidence in gold is increasing. Almost three quarters of investors polled (74%) now consider the mineral to be either fairly valued or undervalued, compared to 69% 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%. Having fallen to 82% in Q3 2017, it decreased slightly again to 79% in the last quarter of the year.

Though remaining high at 78%, the proportion of respondents identifying government bonds as overvalued also continues to steadily decrease, returning to the same level as in Q1 2017.

Says Will Goodhart, chief executive of CFA UK: “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.”


Download 2017 CFA UK Valuations Index Factsheet




Notes to editors:

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About the Valuations Index

The Q4 Valuations Index survey closed on 9 January 2018. Investors polled were asked to give their perceptions based on the following values: developed market equities (represented by MSCI Developed Market Index), $2077.55 at close 12 December 2017; emerging market equities (represented by MSCI Emerging Markets Index), $1121.22 at close 12 December 2017; government bonds (represented by J.P. Morgan Global Government Bond Index), yield 1.39% at close 12 December 2017; corporate bonds (represented by S&P International Corporate Bond Index), yield 1.56% at close 12 December 2017; and gold (represented by the London spot fix), $1255.69 at close 12 December 2017. The survey was open to all CFA UK members and there was a total of 207 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 12,000 investment professionals in the UK.

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