The sharp rebound in equities last March, led by massive central bank monetary expansion, has left investors wondering how durable equity valuations are.

Responses from 6,040 CFA Institute members worldwide provided in March showed that almost half (45 per cent) said that equities in their respective markets have recovered “too quickly” and expect a correction in one to three years.

The survey and forthcoming report, COVID-19, One Year Later – Capital Markets Entering Uncharted Waters, follows the analysis of member sentiment reported in 2020. Market volatility appears to be a lesser concern in 2021 compared with a year ago. While 26 per cent of members surveyed reported that market volatility had forced their firm to reconsider asset allocation choices in April 2020, only 18 per cent responded in the same way in March 2021.

The study showed that 16 per cent of respondents said equities in their home markets will stay on their upward trend "for a prolongued period of time"; 25 per cent said equities will stabilize in line with the real economy.

“It is interesting to see the survey results telling us that respondents believe that equities have recovered too quickly, as it could show that CFA Institute members believe there is a disconnect between economic growth fundamentals and capital markets caused in part by monetary stimulus, which could be corrected in a not-too-distant future of less than three years,” Paul Andrews, managing director of research, advocacy and standards at the CFA Institute, said. “To me, it also indicates to authorities that monetary stimulus is not a simple or linear lever to pull given the complexity of the economic and financial ecosystem; there will be unintended consequences to consider in the future.”

The proportion of respondents who believe that equities are fairly valued is low in all regions (between 2 per cent and 16 per cent).

Respondents in North America (the US, in particular) are more worried about a correction than Europeans (50 per cent vs 40 per cent), which can be explained by the pace of equity markets’ recovery in both regions since March 2020.

Respondents in emerging markets appear more optimistic that equities in their own market and in global emerging markets will gradually stabilize in line with the real economy, which is not a view they share for developed market equities.

Many perceive that global developed market equities are more overvalued than those in global emerging markets, likely due to the variations in monetary stimulus and government relief programs enacted in different parts of the world.

CFA members’ position on volatility has changed markedly from a year ago, possibly caused by moves by central banks to massively expand the monetary base, the report said.

In March 2021, 28 per cent of respondents were investigating the potential impact from market volatility, compared with 42 per cent in April 2020. Some 48 per cent of respondents now think that volatility did not have a material impact on their activity or that of their firm (32 per cent in April 2020).

The proportion of respondents who indicated that volatility has had a significant impact fell from 26 per cent to 18 per cent globally.

The survey was conducted from March 8 – 28, 2021. A total of 150,024 individuals received an invitation to participate. Of those, 6,040 provided a valid answer, for a total response rate of 4 per cent. The margin of error was ±1.2 per cent.