A record-high proportion of CFA Society of the U.K. members think developed markets equities are overvalued, showed responses to its latest valuations index.
In the fourth quarter of 2016, 71% of respondents to a poll by the society thought developed markets equities are overvalued, up from 67% in the third quarter and 52% in the fourth quarter 2015. The figures suggest investors are concerned that a lot of the positives resulting from political shocks and other factors might already be priced into markets, the CFA said.
Government and corporate bonds are also still viewed as being overvalued. Among respondents, 78% said both asset classes are overvalued. In the third-quarter poll, 82% of respondents said government bonds were overvalued and 78% said the same of corporate bonds. A year earlier, 79% thought government bonds were overvalued and 73% thought that of corporate bonds.
Emerging markets equities, however, were viewed as overvalued by 25% of respondents, up from 24% in the third quarter, and 23% in the fourth quarter, 2015. For the fourth quarter, 43% thought emerging markets equities were undervalued, compared with 42% in the third quarter, and 57% in the fourth quarter, 2015.
“The fact that more than 70% of respondents say that developed market equities are overvalued indicates that the so-called Santa rally might be running out of steam,” said Will Goodhart, CEO of CFA U.K., in a statement accompanying the figures. “With so much change occurring in 2016 and potentially 2017, it seems investors are concerned a lot of the positives may already be in the price. They could be reluctant to chase further gains.”
Mr. Goodhart said survey respondents believe developed markets equities are at their most overvalued level in the four years he survey has been conducted, “suggesting that they worry that some of the risks that the markets have shrugged off to date may come home to roost.”