Record numbers brand developed markets overvalued

Record numbers brand developed markets overvalued

The number of investors and analysts who think developed market equities are too expensive has reached a record high, according to new figures.

The CFA Society, which received 225 responses as part of its valuations index, found the proportion of investors who viewed developed market equities as overvalued climbed to 71 per cent in the final three months of last year.

This is a sharp increase from the start of last year, when 40 per cent of respondents viewed this asset class as overvalued.

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Whereas just over a quarter of the investors and analysts considered developed market shares to be undervalued at the start of 2016, only 10 per cent now hold that view.

Will Goodhart, chief executive of CFA UK, pointed out respondents now believe developed market equities to be at their most overvalued level in four years.

This, he said, suggests that they worry that some of the risks that the markets have shrugged off to date may come home to roost. 

Meanwhile, views about the overvaluation of global bonds shows no signs of abating, having remained at its highest recorded level through the second half of last year. 

The index shows 78 per cent of respondents now view both government and corporate bonds as too expensive.

Mr Goodhart said: “Rising bond yields appear to have removed one of the few remaining reasons to regard equities as undervalued.” 

He said the Fed's December rate hike and the announcement of more to come this year should mean that bond valuations back down, adding: “2017 is looking like a year where investors should tread carefully”.

Emerging market equities have also seen an uptick in the number of respondents who consider the asset class to be overvalued to stand at 25 per cent at the end of last year from 19 per cent at the start.

However, consensus remains that the asset class is undervalued, with 43 per cent holding this view.

Mr Goodhart added: “2016 has been a year of significant political shocks, but markets have weathered these well with continuing accommodative support from central banks through most of the year.