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INVESTING/PORTFOLIO STRATEGIES

CFA Society of the U.K. members see corporate bonds overheating

More than 80% of CFA Society of the U.K. members view corporate bonds as overvalued, the highest level recorded by its valuations index in its five-year history.

The index, which polls the society's members, found 82% of respondents believe the asset class to be overvalued. This view has climbed over four consecutive quarters to reach the all-time high for the index. The previous quarter, 78% said they held that view.

Government bonds are also seen as overvalued, with 78% of respondents holding that view, the same as the previous quarter.

Developed equity markets are seen as overvalued by 68% of respondents, down from 71% the previous quarter.

Emerging market equities, however, were viewed as overvalued by a minority of respondents, at 23%. That compared with 25% for the previous quarter. The proportion of respondents viewing the asset class as undervalued was 48%, up from 43% the previous quarter. Similarly, gold was viewed as overvalued by 24% of respondents in the first quarter, compared with 32% at the end of 2016.

“Despite some volatility over the past year, bond yields are pretty much as they were when we polled members at the end of last year,” said Will Goodhart, CEO of CFA U.K., in a statement accompanying the data. “It appears that respondents find that somewhat surprising given the sense that growth and inflation are accelerating and that central banks are signaling strongly or weakly that interest rate-setting is entering a period of normalization — for which read that rates will rise.”

On emerging market equities, Mr. Goodhart added the asset class has experienced good support over the past quarter, but respondents “seem to believe that they may have further to run.”

The CFA Society of the U.K. surveyed its membership between Feb. 10 and March 7, receiving 219 responses from analysts and investors.