Investors struggle to find value in the face of market uncertainty and divergent interest rate movements
Sunday 18 June 2017
•84% of investors polled perceive corporate bonds as overvalued, an increase for the fifth consecutive quarter and a new record high
•Perceptions of government bonds and developed market equities as overvalued also remain high
•Investors only finding value in emerging market equities
The results indicate that investors are largely struggling to find value in the market and that this issue has worsened since Q1 2017.
The proportion of investors polled who perceive corporate bonds as overvalued has hit an all-time high, totalling 84%. This is the fifth consecutive quarterly increase (rising from 69% in Q2 2016) and marks the highest level since CFA UK launched the Valuations Index more than five years ago. A 2% increase compared with the last quarter, the outcome most likely reflects the slight drop in corporate bond yields since Q1, from 1.66% on 8 February 2017 to 1.56% on 20 April 2017.
Government bonds are also seen as overvalued by 82% of respondents, marking a 4% increase from the last two quarters.
The vast majority of investors surveyed (69%) also continue to consider developed market equities to be overvalued, a belief now widely held for over a year. This follows a sharp rise from 40% in Q1 2016.
Investors indicated that they are only currently finding value in emerging market equities. Contrary to other investments, emerging market equities are largely perceived as either undervalued (41%) or having a fair value (34%).
Current perceptions of the value of gold on the other hand vary significantly. Whilst 45% of respondents believe gold to have a fair value, 32% see the metal as overvalued and a further 23% feel that it is undervalued.
Says Will Goodhart, chief executive of CFA UK: “A year or so ago, our index suggested that investors were still finding some value in corporate credit even if government bonds were seen as very fully valued. That hasn’t been the case for some while and the most recent results show that investment professionals are less convinced by the attractions of corporate credit than at any stage of the past five years. Few of the main asset classes are currently regarded as offering value, though emerging market equities are still seen as attractive. We’re reinforcing the message that others have put out that valuations are high but may remain so and that emerging markets seem to offer relatively better value for the time being.”
About the Valuations Index
The Q2 Valuations Index survey closed on 22 May 2017. Investors polled were asked to give their perceptions based on the following values: developed market equities (represented by MSCI Developed Market Index), $1835.04 at close 20 April 2017; emerging market equities (represented by MSCI Emerging Markets Index), $952.92 at close 20 April 2017; government bonds (represented by J.P. Morgan Global Government Bond Index), yield 1.41% at close 28 April 2017; corporate bonds (represented by S&P International Corporate Bond Index), yield 1.56% at close 20 April 2017; and gold (represented by the London spot fix), $1280.20 at close 20 April 2017. The survey was open to all CFA UK members and there was a total of 192 respondents.