With developed market equities being increasingly regarded as overvalued throughout the first three quarters of 2014, Q4 marks a reversal of this trend, according to research by the CFA Society of the UK (CFA UK). 

The CFA UK Valuations Index reveals that the proportion of investment professionals that view developed market equities as overvalued has fallen from 55% to 42% in the last quarter with 23% now believing there is value in the asset class, up from 12% the previous quarter.

Emerging market equities continue to be the only asset class regarded as undervalued by a majority of investment professionals (52%), despite this proportion falling from 59% at the start of the year.

Opinions on government bonds have not changed since the last quarter with 75% of investors and analysts considering the asset class as overvalued. Investors continue to struggle to see value in corporate bonds with over two thirds (68%) of respondents believing they are overvalued and just 9% believing the contrary.

Having seen a 10% drop in the number of investors viewing gold as overvalued between the first two quarters of the year, perceptions have since stabilised. Over a third of investment professionals (38%) retain their view that the commodity is overvalued, up 1% on the previous quarter and by contrast, just under a quarter (23%) consider it to be undervalued.

Will Goodhart, chief executive of CFA UK, says: “The sell off that we saw in Q3 – and, in particular, the way that the markets responded – appears to have changed views on valuations in developed market equities. Nevertheless, respondents continue to believe that most asset classes are overvalued. This probably reflects the concern that market values are dependent on the easy monetary conditions being employed by central banks in the face of weak global growth. It will be interesting to see how respondents’ views develop if global growth remains anaemic.”