CFA UK: Investors reveal ‘potentially toxic’ combination of sentiments

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UK investment professionals are displaying a “potentially toxic” combination of sentiment when it comes to the valuation of major asset classes, research by the CFA UK shows.

The CFA UK Valuations Index, which polled 755 of the society’s members between 21 and 29 May, reveals that the number of investors seeing developed market equities as overvalued has significantly increased over the past year while a large proportion remain wary of government bonds.

Some 47 per cent of respondents rated developed market equities as either overvalued or very overvalued – up from just 26 per cent one year earlier. Meanwhile, the share of investors seeing the asset class as undervalued or very undervalued dropped from 39 per cent to 22 per cent.

When asked about government bonds, 79 per cent described them as being somewhat overvalued or very overvalued – making them the most overvalued in the eyes of investors. Furthermore, corporate bonds are increasingly being seen as overvalued with 70 per cent of UK investors taking this view, an increase from 49 per cent 12 months ago.

CFA UK chief executive Will Goodhart says: “That’s a potentially toxic combination of sentiments.

“While bond markets were regarded as significantly overvalued last year, they were at least balanced by a belief that equity markets were relatively undervalued. There’s been little change in views on bond valuations since last year, but the number of respondents viewing developed market equities as also overvalued has shot ahead.”