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Emerging markets and bonds less favourable, say investors

Emerging markets less favourableMore investment professionals see emerging market equities as fairly valued, research has found.

The rise to approximately one third of professionals with this view follows a period of underperformance in the sector last year, according to the CFA UK, a professional body which surveyed its members.

“This rise corresponds directly to an 11% quarter-on-quarter decrease in the proportion of respondents deeming emerging market equities undervalued, while the proportion of those seeing overvaluation remained comparable,” CFA UK said.

The outlook on bonds, meanwhile, has become “more divided and worsened again” after a positive shift between the third and fourth quarters of 2018.

Just over 70% of respondents saw corporate bonds as overvalued in the first quarter of this year.

While government bonds continue to be seen in a better light than corporate bonds, six out of ten investors still consider them overvalued.

Corporate bond yields decreased from 2.2% in Q4 2018, to 1.89% in Q1 2019, while government bonds dropped from 1.75% to 1.57% between the analysts’ quarterly surveys. A greater global economic slowdown may see the yields drop further, CFA UK said.

According to Will Goodhart, chief executive of CFA UK: “These are difficult times for investors”. Brexit uncertainty and fears of a US recession have taken their toll on market valuations and investors’ decisions, he said.

The view on developed market equities, however, has slightly improved, which Goodhart called “encouraging”.

Although 57% of respondents still see the asset class as overvalued, this is 4% less than in the fourth quarter of 2018.

Overall, Goodhart said that the results of the survey “reflect a less promising outlook from investors than last quarter”.

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