Download January 2012

May 2014
Indications of an accelerating change in the perceived value of Developed Market Equities,
Government Bonds and Gold – CFA UK Valuations Index
 Developed Market Equities are increasingly viewed as overvalued by investment professionals while
Emerging Market Equities are still seen as undervalued
 In contrast, fewer investment professionals view Government Bonds or Gold as overvalued
Investors are reassessing the relative value of the main asset classes, according to research released today by
the CFA Society of the UK (CFA UK). The CFA UK Valuations Index* reveals that almost half of investment
professionals (49%) currently view Developed Market Equities as overvalued, up from 39% last quarter,
while just 16% view them as undervalued – the lowest proportion since the index was first published in
2012.
There has also been a shift in opinion regarding Government Bonds and Gold in the last quarter, with fewer
investment professionals viewing the traditional ‘safe havens’ as overvalued; the proportion of investment
professionals viewing Government Bonds as overvalued has fallen to 71% from 76%, while only around a
third (36%) now view Gold as overvalued, down from 46% in Q1 2014, and a high of 61% in Q1 and Q2 of
2012.
Opinions on Emerging Market Equities are broadly unchanged from last quarter. Only one in five
investment professionals (20%) currently view them as overvalued, compared to 57% who see value in the
asset class.
Says Will Goodhart, chief executive of CFA UK: “Investor sentiment has shifted in the last quarter, with a
proportion of investment professionals changing their views on three of the five asset classes covered in CFA UK’s research.
Expectations that central banks may delay interest rate rises, given recent economic data and an increasingly benign
inflation outlook, appear to be encouraging some investment professionals to reconsider the relative value of debt and
equity investments. With both the FTSE and S&P indices hovering around record highs, our data suggests that investors
should perhaps be cautious about reaching for yield in developed market equities when investment professionals view that
yield premium as vulnerable.”
CFA UK Valuations Index
The CFA Society of the UK surveyed its membership between 9 and 14 May 2014, and received 532
responses from analysts and investors. The respondents were asked how they would rate the following
markets in terms of representing fair value on a one-year time horizon:
*
1) Developed Market Equities (as represented by the MSCI Developed Market Index - $1,684.04
at close 7 May 2014): Very undervalued (>15%); Somewhat undervalued (<15%)>; Fair value;
Somewhat overvalued (<15%)>; Very overvalued (>15%).
2) Emerging Market Equities (as represented by the MSCI Emerging Market Index - $1004.50 at
close 7 May 2014): Very undervalued (>15%); Somewhat undervalued (<15%)>; Fair value;
Somewhat overvalued (<15%)>; Very overvalued (>15%).
3) Government Bonds** (represented by J.P. Morgan Global Government Bond Index – yield
1.94% at close 7 May 2014): Very undervalued (>5%); Somewhat undervalued (<5%)>; Fair
value; Somewhat overvalued (<5%)>; Very overvalued (>5%).
4) Corporate Bonds** (represented by the S&P International Corporate Bond Index – yield of
2.30% at close 7 May 2014): Very undervalued (>5%); Somewhat undervalued (<5%)>; Fair
value; Somewhat overvalued (<5%)>; Very overvalued (>5%).
5) Gold (represented by the London spot fix - $1296.00 at PM 7 May 2014): Very undervalued
(>15%); Somewhat undervalued (<15%)>; Fair value; Somewhat overvalued (<15%)>; Very
overvalued (>15%).
5% undervaluation/overvaluation is a percentage of the yield, as opposed to yield +/- 5% e.g. the opinion that a yield
of 2.08% is 5% undervalued implies the respondent believes it should be at c. 2.18%, rather than 7.08%.
**
The CFA Society of the UK
The CFA Society of the UK (CFA UK) represents the interests of approximately 10,000 members of the
investment profession, and supports the CFA and ASIP designations.
The society is a leading member society of CFA Institute (the global, nonprofit organization of investment
professionals) and serves society’s best interests through the education of investment professionals, by
informing policy-makers and the public about the profession and through the promotion of high professional
and ethical standards. The society was founded in 1955.
CFA UK is the awarding body for the Investment Management Certificate (IMC), an entry level qualification
for investment professionals. The IMC is a Level 4 qualification that meets the FSA’s requirements (either
solely or in combination with other qualifications) for managing investment and advising on and dealing in
securities and derivatives.
CFA UK promotes the CFA Program, but is not the awarding body for the CFA Program. CFA Institute is
the awarding body for the CFA Program which is a graduate level, self-study programme designed to equip
investment professionals with technical skills, practical knowledge and a clear understanding of ethics and
professional standards.