The asset class that looks undervalued despite 30% rally

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Investors view emerging market equities as the best value asset class in Q3 despite rallying 30 per cent over the last year.

A CFA UK survey shows 41 per cent view emerging market equities as undervalued, while 35 per cent that reckon they are fairly valued.

In contrast, three quarters consider developed market equities overvalued.

This is even stronger with fixed income, with 82 per cent viewing corporate bonds as overvalued and 79 per cent saying the same about government bonds. Both results are slightly down from Q2 when 84 per cent and 81 per cent respectively saw each asset class as overvalued.

In contrast, the proportion viewing developed market equities as overvalued was up from 69 per cent in Q2.

CFA UK chief executive Will Goodhart says interest rates in the US, UK and Canada 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 per cent over the last year.”

Gold divided respondents with 45 per cent viewing it has fairly valued while 30 per cent viewed it overvalued and 25 per cent undervalued.