The research found 55% of respondents rated emerging market equities as somewhat undervalued or very undervalued in the third quarter, up from 44% in the last quarter. However, there is still significant disparity in views, with 21% viewing the asset class as overvalued.
Relatively weak markets over the summer have reduced the number of investors who believe that all five asset classes – developed market equities, emerging market equities, government bonds, corporate bonds and gold – are overvalued. The survey also showed that for developed market equities, government bonds and gold, there was less disparity of opinion, suggesting that the consensus believes these markets are increasingly fair value.
For developed market equities, 37% now view the asset class as being fairly valued, compared to 47% in the last quarter. Only 27% view developed market equities as undervalued or very undervalued, compared to 22% in the second quarter. The range of opinion is now at its narrowest since results were first calculated.
Government bonds remain the most overvalued asset class, with 73% of respondents rating them as somewhat overvalued or very overvalued, though this too represented a drop from the last quarter, down from 79%. Only 9% see government bonds as undervalued or very undervalued. Corporate bonds are now viewed as overvalued by 64% of investment professionals compared to 70% in the second quarter of 2013.
Sentiment towards gold is broadly unchanged, with 46% over investors viewing it as overvalued – the same as the previous quarter – and 23% viewing it as undervalued compared to 27% in the second quarter.
Will Goodhart, chief executive of CFA UK: “Summer fears of developed equity markets overheating appear to have subsided somewhat…. However, that normalisation doesn’t extend to emerging market equities, where respondents clearly believe that the market has been oversold earlier this year in light of concerns about possible rate rises in the US.”
According to Financial Times data, the US S&P 500 index is currently trading at 17.5x earnings, the UK at 14.6x earnings and the German Dax 30 at 14.1x. In contrast, the Hang Seng is at 10.9x earnings, the Chinese market at 7.2x earnings and the Russian market at 6x earnings. However, some emerging stock markets are still trading on relatively high multiples – the Brazilian and Indian markets trade on 15.9x earning and 14.2x earnings respectively.
