Corporate bonds overvalued, say many UK professionals

Survey1Major traditional asset classes no longer hold much value, except emerging market equities, in the eyes of investment professionals, a survey indicates.

Of the 272 respondents to a CFA UK poll of investor sentiment among its professional membership, the percentage that considers corporate bonds to be overvalued (76%) has reached its highest level in the three years since the launch of the CFA UK Valuations Index.

Similarly, the amount of professionals that considers developed market equities to be overvalued has also increased 10% to 52%, while emerging market equities maintains its position as the only asset class regarded as undervalued by a significant amount of respondents – though even this has fallen to 43% from 59% a year ago.

Will Goodhart, chief executive of CFA UK, which is part of the CFA Institute, an organisation that awards professional qualifications, says the survey reflects a view that additional benefits from quantitative easing may be limited.

He adds: “The overall picture suggests that investment professionals see the search for returns as becoming even more challenging,” and he points out that some government bonds now offer negative yields.

Government bonds continue to be perceived as the most overvalued asset class according to 81% of investors. The number of investment professionals viewing them as undervalued or very undervalued has more than halved since the final quarter of last year, down to just 3%.

The CFA UK poll was carried out between February 17 and March 9 and jars with views found among the UK adult population of investors.

In a survey of 4,536 UK adults carried out March 2-4 (of which 1,167 were investors), Lloyds Bank found that overall average asset class sentiment has reached a high.

For example, negative sentiment towards Eurozone shares fell between March and February by 13%, according to the Lloyds Bank Private Banking Investor Sentiment Index, though negative sentiment for the asset class was still the most of all asset classes, at -33%.

Ashish Misra, at Lloyds Bank Private Banking, says: “The continued improvement in asset class performance paints a positive outlook for investors. Most notable is Eurozone shares, which has gained significant momentum, despite still displaying a highly negative sentiment. This could reflect the improvement in sentiment on account of the commencement of quantitative easing by the European Central Bank and some improvement in the overall macro-economic backdrop for the region despite ongoing challenges in the periphery.”

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