Investors have become increasingly concerned about “overvalued” developed market equities, research has suggested.
The CFA UK Valuations Index, which received 584 responses from analysts and investors between 22 and 31 July, revealed that 55 per cent now viewed developed market equities as overvalued, up from 49 per cent in May.
Will Goodhart, chief executive of CFA UK, said: “In spite of serious geopolitical events, stock markets are at, or close to, highs.
“However, our research indicates that investors are increasingly cautious about valuations and this may affect the way that capital is allocated over the remainder of the year.”
| Very undervalued | Somewhat undervalued | Fair value | Somewhat overvalued | Very overvalued | |
| Developed market equities | 1% | 11% | 33% | 46% | 9% |
| Emerging market equities | 7% | 43% | 28% | 18% | 4% |
| Government bonds | 1% | 6% | 18% | 38% | 37% |
| Corporate bonds | 1% | 8% | 20% | 44% | 27% |
| Gold | 5% | 20% | 38% | 28% | 8% |
The survey also found that 50 per cent of respondents saw emerging market equities as undervalued, down from 57 per cent in the previous month.
Chris Hills, chief investment officer for Investec Wealth and Investment, said: “The underlying case for holding equities remains strong, but having achieved strong returns over an extended period, we believe now is the right time for a balanced portfolio to reduce moderately its exposure to equities and take some profits.”
He warned that sentiment towards UK equities was likely to be affected by the strong pound, which is already acting as a drag on corporate profits, while persistently weak economic growth was likely to have a similar effect on eurozone equities.
This comes not long after recent news that an unnamed private investor had placed a $1.1bn (£0.65nn) hedge with FLEX options in the US, raising the spectre that US financials could be set for a fall.
The investor bought 561,000 Select Sector SPDR-Financial exchange-traded funds at the end of July, which will pay off if the US financial sector falls by 10 per cent.
Adviser view
Trystan Lewis, chartered financial planner for Chester-based Griffin Wealth Management, said: “Stock markets have generally gone up for the past few years. We have been coming out of a recession and not experienced too much volatility since 2008.
“But there are always hurdles on the horizon.”
