FIDELITY WORLDWIDE INVESTMENT ANALYST SURVEY REVEALS A RE-EMERGENCE OF ANIMAL SPIRITS
- Companies and management teams confident about the year ahead
- US regarded as strongest region measured by business confidence, capital expenditure outlook, dividend growth potential and balance sheet health
-Increased dividend payouts and M&A among the strongest themes to emerge for 2014
Stockholm, 11th June 2014: Corporate confidence and fundamentals favour developed over emerging markets, with the US widely regarded as the standout economy, according to Fidelity Worldwide Investment’s Analyst Survey.
The survey of 128 analysts based in Europe and Asia, also found a higher proportion of companies are confident about the year ahead compared to last year, reflecting the strength of the recovery, a return to ‘normal’ conditions and early signs of ‘animal spirits’ after a period of protracted uncertainty and management caution.
As a result of this cautious optimism, company management are starting to spend some of the cash sitting on balance sheets with the focus on shareholder-friendly activity, bolt on M&A and increases in dividend payments rather than aggressive capital expenditure (capex) growth.
From a fixed income perspective, the credit cycle is maturing as leverage creeps higher and valuations tighten. Event risk will be the dominant theme for credit investors over the next 12 months, which creates both winners and losers in the bond market.
Commenting on the findings of Fidelity’s latest Analyst Survey, Henk-Jan Rikkerink, Head of Equity Research, Europe & US at Fidelity Worldwide Investment says: “This year’s survey suggests company management teams are more prepared to put capital to work after a period of protracted caution. As a result, we are moving into a more discriminating environment in which stock-specific drivers are likely to explain a larger part of investment returns. We expect market leadership to refocus on quality franchises, particularly those in the intellectual property sectors, such as pharmaceuticals and technology.
“Our research process helps us to identify a range of long-term winners with strong fundamentals; these are the types of stocks that tend to be rewarded when investors look beyond macroeconomic factors.”
The Fidelity Analyst Survey is run annually and presents a temperature check of corporate confidence and identifies some of the long-term investment themes expected to shape to shape the global economy and investment markets in the years ahead. The survey garnered responses from 128 analysts based in Europe and Asia and provides a rare insight into Fidelity’s fundamental investment process.
A summary of some of the key findings can be found below:
A re-emergence of animal spirits
After an extended period of uncertainty and corporate caution, management confidence and animal spirits are returning to economies and stock markets. Management teams are now no longer worried the world will end; the big tail risks of financial system collapse or contagion have become progressively less likely. Capex is expected to recover from historically low levels, although the magnitude and pace looks likely to be more muted than the consensus belief. Two of the largest historic contributors to capex in absolute terms have been energy and materials, yet these sectors produced the highest negative results in the survey. Healthcare and consumer discretionary, on the other hand, were the sectors which led the way in terms of analyst expectations of capex increases.
A preference for developed markets with the US widely regarded as the standout economy
In terms of geographies, the survey produced a marked divide between developed and emerging markets. This is unsurprising, given the current environment of a stronger dollar and fall-off in commodities demand. The US came out strongest in terms of business confidence, capex outlook, dividend growth potential and balance sheet health. In terms of sectors, a related divide was also prominent; the sectors that polled more positively across the board were the knowledge economy sectors of pharmaceuticals, technology and financials, as well as consumer.
From a fixed income perspective, Asia portrayed weaker credit fundamentals versus developed counter-parts, yet Asian valuations were recognised as providing ample compensation for the risks.
A focus on shareholder-friendly activities
One of the strongest responses in the survey was around dividends, with analysts reporting that a large majority of their companies are likely to maintain (54%) or increase (40%) dividends. Perhaps unsurprisingly, financials (post the 2008/9 financial crisis) and healthcare companies were most bullish about dividend increases. Japan and the US were the regions that were most expected to increase pay-outs, although this may be partly a function of the fact that the total dividend level is lower in these markets than is traditionally the case in the UK and Europe so there is more scope for dividends to grow in these geographies. The survey also revealed 85% of analysts believe M&A will be a priority looking ahead. Most analysts expect a moderate amount of M&A, 15% a large amount, and only a small minority see M&A as a huge strategic priority.
Notes to editors:
About Fidelity’s Analyst Report
This report presents a snapshot of some of the key investment opportunities identified by Fidelity’s equity and fixed income investment teams across Europe and the Asia Pacific regions. Drawing on this fundamental company research, Fidelity’s analysts highlight some of the broader investment themes that will shape the global economy in the years ahead. The survey is not exhaustive by any means; rather it is designed to shine a light on some of the companies, sectors, regions, and secular themes that Fidelity believes are the most attractive against a backdrop of deleveraging and weak global growth.
This report is based on questions given to more than 128 equity and fixed income professionals in Europe and Asia covering a variety of sectors, designed to extract a selection of their best and most contrarian investment ideas. It was complemented by a number of discussions with heads of research to verify trends and themes across countries, sectors and asset classes
About Fidelity’s fundamental research-driven approach
Fidelity pursues an active investment style based on the deep and comprehensive fundamental research undertaken by our investment teams. Its objective is to deliver superior investment performance by developing a rich and detailed understanding of the anticipated financial evolution of all of the companies in which it invests. Its global research network comprises over 350 investment professionals, based in a range of international locations, including London, Paris, Frankfurt, Milan, Mumbai, Singapore, Hong Kong, Shanghai, Seoul, Sydney, Tokyo, Sao Paulo and Bermuda.
Its portfolio managers are supported by a broad, dedicated team of investment analysts who cover specific sectors and markets. The analysts are responsible for maintaining investment recommendations based on fundamental, proprietary research. Fidelity does not impose top-down investment views on its portfolio managers, who are responsible for their own investment decisions. At the same time, they have access to extensive macro-economic analysis and market cycle insight to inform portfolio construction.
To download the report, click the link below.
For further information, please contact:
Fidelity Worldwide Investment
Tel. +46 (0)8 505 257 02
About Fidelity Worldwide Investment
Fidelity Worldwide Investment is one of the largest independent mutual fund managers. We have offices in 25 countries around the world and manage investments worth more than US$215 bn.
Fidelity was founded in 1969 and has over over 5 500 employees. We have over 7 million cients - both institutions and larger companies, but also private clients. Since 1996 we have had a presence and supported clients in the Nordic region.
We manage more than 740 funds and with more than 280 analysts and portfolio managers across the globe, we have a unique loval presence but also global expertise. Fidelity is a privately owned company.