A survey of members by the Chartered Financial Analyst (CFA) Institute UK finds that a growing number of UK professional investors regard corporate bonds to be overvalued.

CFA UK’s latest quarterly survey, to which 150 members responded, found that in Q1 2019, 73% of professional investors considered corporate bonds to be overvalued, against 69% in the previous quarter.

Six in 10 investors consider government bonds to be overvalued, with the proportion of investors viewing them as ‘very overvalued' increasing from 16% in Q4 2018 to 19% in Q1 2019.

Corporate bond yields dropped from 2.2% in Q4 2018 to 1.89% in Q1 2019 while government bond yields declined from 1.75% to 1.57% between the quarterly surveys.

Difficult times

By contrast, the number of CFA UK respondents who feel developed market equities are overvalued has decreased.

“More than half of respondents (57%) still see equities as overvalued, but this represents a 4% decrease from Q4 2018,” CFA UK noted. “While major equity markets have rallied following the tech-led sell-off in October, values are still lower than the peaks of 2018.”

The proportion of respondents deeming emerging market equities as undervalued dropped 11% over the quarter, directly corresponding to the 11% increase in investors polled who now consider emerging market equities to be fairly valued, at 33%.

CFA UK chief executive Will Goodhart said the survey reflects less promising perspectives from investors than in Q4 2018. “These are difficult times for investors, with equity and bond prices recently falling and rising together, and continuing concern about the global economy slowing.

“Since this survey was taken, uncertainty around Brexit and fears of a US recession have also taken a toll on market valuations and are impacting investors’ decisions. That said, the reduction in perceived overvaluation of developed market equities is encouraging.”