Global equities and bonds increasingly seen as overvalued, CFA survey reveals

Added 15th August 2016

Growing uncertainty in developed markets and a flight to safe haven assets post-Brexit have skewed valuations, according to an increasing number of industry professionals polled by the CFA Society of the UK.

Global equities and bonds increasingly seen as overvalued, CFA survey reveals

Some 62% of respondents viewed developed market equities as overpriced, a 22% increase from the first quarter and the sharpest rise the asset class has seen in the four and a half years the CFA survey has been in existence.   

This significant spike reflects a growing disillusionment with developed markets that has intensified after the Brexit vote and in the midst of the heated US Presidential election, CFA UK noted.

And the reaction also helps to explain the generally muted effect in emerging market equities, which have less direct exposure to the current volatility plaguing developed markets. Between the first and second quarters, there was only a 3% rise in those who thought the asset class was unfairly valued, the CFA UK reported.

The number of respondents who viewed government bonds and corporate bonds as overpriced also increased over the second quarter, likely a response to the record-low yields each category has witnessed of late, the CFA UK said.

Survey participants even had greater misgivings about tried and true safe haven asset, gold. Of those questioned 39% perceived the asset class to be overvalued, the highest number of respondents subscribing to this view since 2014. 

A total of 75% of respondents said government bonds were overvalued, compared with 67% in Q1 2016. Whereas corporate bonds were described as overvalued by 69% of those polled, an 11% increase from the previous quarter.

Chief executive of CFA UK, Will Goodhart, said the increased disillusionment in global equities and bonds indicated in the findings was not entirely surprising.

“Political risks have come to the fore and the economic outlook is uncertain,” he said. “As the G20 recently observed, the global economic recovery is continuing, but remains ‘weaker than desirable’. Against this backdrop, bond yields continue to fall and the US and UK equity markets stand at or close to year-long highs. The shift back towards a perception of developed market equities being overvalued is unsurprising. The extent and speed of that shift however was somewhat unexpected.”

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