Two-thirds of UK investors say stocks overvalued

More UK investment professionals think shares and bonds are overvalued that at any time in the past four years - a shift in sentiment that their industry body attributes partly to the UK's Brexit vote and US election worries.

In a new poll by the CFA Society, which has more than 11,000 members working across the investment industry, two-thirds of respondents said developed market equities were overpriced, and eight in 10 said that bonds were overvalued.

These were the most pessimistic results since CFA UK first began asking its members about equity and bond valuations in 2012.

Will Goodhart, chief executive of CFA UK, said: "The impact of Brexit and concerns around the US election result may be weighing on the minds of investors, as the proportion of our respondents viewing developed markets equities as overvalued hit record highs.

He also warned: "The broad perception that valuations are now at extreme levels indicates that market values are more than usually vulnerable to rapid and significant change."

At the start of the year, only 40 per cent of CFA members said that developed market stocks were overvalued. But that has now risen to 67 per cent - despite only a 3.7 per cent rise in the FTSE All-World Developed index in the year to date.

Professional investors who think stocks are still undervalued and offer good value account for only 10 per cent of respondents, down from almost 30 per cent at the start of the year.

Didier Saint-Georges, managing director of French fund house Carmignac, which reduced its equity exposure in September, said: "Both equities and bonds have become vulnerable to external shocks. The US elections present us with a situation of unfavourable risks."

A portfolio manager at a large Swiss fund company, speaking on condition of anonymity, added: "I can understand the concerns. The S&P is near all term highs, there are $10tn of negative-yielding bonds, and even the FTSE 250 is at or near all time highs. And there has been a flurry of M&A and IPO activity, which can be an indicator of market frothiness."

More than 80 per cent of investors responding to the CFA's poll said government bonds were overpriced, an increase of 15 percentage points since the beginning of the year. Similarly, the number of respondents saying corporate bonds were overvalued rose to its highest level in three years.

However, Xavier Baraton, chief investment officer for fixed Income in North America at HSBC Global Asset Management, was more upbeat about the findings. He said: "Corporate bonds look slightly on the expensive side, but we do not expect ‎a significant or prolonged deterioration."

His views are supported by fund inflow figures from Morningstar, the data provider. Since the start of the year, fixed income funds in Europe have attracted €69bn of assets. By contrast, European investors have pulled more than €71bn from equity funds over the same period.

Morningstar blamed the outflows from equity funds on a "global flight to safety" following the UK's vote to leave the EU.

Mr Saint-Georges at Carmignac added: "There are many risks, not just Brexit and the US elections, but the Italian referendum in December and German and French elections next year.

"These could be important if populist parties with an anti-Europe agenda make gains. With central banks debating whether to tighten monetary policy at a time of heightening political risk, it is understandable to see why so many investors are nervous."



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