Fund professionals concerned about bond bubble

The number of investment professionals who believe developed market equities and bonds are overvalued is increasing, a survey indicates.

Two thirds of the 354 analysts and investors said developed market equities were overvalued and eight in ten said the same of bonds.

CFA UK, a professional body which carried out the ‘Valuations Index’ survey among its members, said the perception of developed market equities as overpriced had reached new highs, climbing from 40% at the beginning of 2016 to 67% in the third quarter (Q3).

Similarly, those who said developed market equities to be undervalued fell from 27% to 10%.

The perception of global bonds as overvalued has also risen markedly. Just over 80% of those polled considered government bonds to be overpriced – a 7% rise from Q2 and a 15% rise since the beginning of the year.

The same is true of corporate bonds, which are now considered by respondents to be at their most overvalued in three years, with 78% believing that the asset class is overvalued, marking a 9% increase since Q2 and a 20% increase since the beginning of the year.

However, only 5% of the investors polled viewed both corporate and government bonds as undervalued.

The results have prompted concerns over a “growing bond bubble”, said CFA UK, the professional association which carried out the survey among its members.

Although emerging market equities saw a slight uptick in the number of respondents who considered the asset class to be overvalued, the consensus is that the asset class is undervalued, with 42% holding this view versus 24% who believe they are overpriced.

Will Goodhart, chief executive of CFA UK, said: “The broad perception that valuations are now at extreme levels indicates that market values are more than usually vulnerable to rapid and significant change.”

©2016 funds europe

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