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U.K. investors’ views on value of equities, bonds diverge in Q1 – survey

More investors in the U.K. think emerging markets equities are fairly valued but bonds are overvalued.

The proportion of U.K. investors believing emerging markets equities are fairly valued increased in the first quarter, while more investors believed bonds are overvalued, according to CFA U.K.'s latest quarterly valuations index survey.

The index, which measured CFA U.K. member perceptions of the values of bonds, equities and gold, showed 33% believed emerging markets equities are fairly valued, compared to 22% in the fourth quarter of 2018. The perceived value correction comes following a period of underperformance for the asset class in 2018, a news release announcing survey results said. The outlook for developed markets equities, however, rose from the previous quarter, with 57% believing that asset class is overvalued, down from 61% the previous quarter.

More investors, meanwhile, believed bonds are overvalued. Seventy-three percent of respondents said corporate bonds are overvalued for the first quarter, up from 69% in the previous quarter's survey. The perception of government bonds fared similarly poorly, with 60% of investors believing such bonds are overvalued. The news release said that the percentage of those who said government bonds are "very overvalued" rose to 19% in the first quarter from 16% in the fourth quarter.

The proportion of investors who found gold either undervalued or fairly valued dropped slightly in the first quarter to 82% from 86% in the previous quarter.

"The results of our survey reflect a less promising outlook from investors than last quarter. Our members have identified greater overvaluation of bonds than at the end of last year, and their views on emerging market equities are more divided," said Will Goodhart, chief executive of CFA U.K., in the news release. "These are difficult times for investors, with equity and bond prices recently falling and rising together, and continuing concern about the global economy slowing. Since this survey was taken, uncertainty around Brexit and fears of a U.S. recession have also taken a toll on market valuations and are impacting investors' decisions. That said, the reduction in perceived overvaluation of developed market equities is encouraging."

The index survey closed March 18.