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I confirm that I am accessing this website for the purpose of acquiring information as, or for, an Institutional Investor (a corporate or other non-retail investor acting for their own account).

I understand the information contained in this website is not directed at, nor is it intended for distribution to, or use by, persons in any jurisdiction in which the dissemination of such investment related information is not permitted. I also understand that the information contained in this site is not directed to any party that may be defined as a ‘retail investor’ by the home regulator of the country in which the website is being accessed. I understand that the information or opinions contained herein should not be construed as an offer to sell or the solicitation of an offer to buy any investment product nor shall any such investment products or services be offered or sold to any person in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful. Fidelity has expressed its own views and opinions on this website, and these may change and there is no obligation to update them. Nothing in this website should be construed as investment, tax, legal or other advice. The information contained herein is subject to change without notice.

This website has been issued by FIL Fund Management Limited, a Bermuda company licensed to conduct investment business by the Bermuda Monetary Authority. Neither FIL Fund Management Limited, its parent company FIL Limited, nor any of their group companies or affiliates makes or gives any warranty or representation that any information contained on this website is accurate, complete, or fit for any particular purpose.

I acknowledge that neither FIL Fund Management Limited, FIL Limited, nor any of their group companies or affiliates will have any liability for any losses arising directly or indirectly from any information accessed from this website. By accepting this representation I also confirm my agreement to the website Terms and Conditions, which I have read and understood.

Please note that FIL Fund Management Limited is not licensed by the Liechtenstein Financial Market Authority (“FMA”) and is not subject to the supervision of the FMA.

Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited, a company existing under the laws of Bermuda.

If the above representation is correct, please click 'I agree' below to continue to the site.

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Hiermit bestätige ich, dass ich diese Website zur Informationsbeschaffung als institutioneller Anleger (ein auf eigene Rechnung handelndes Unternehmen oder ein anderer nicht als Privatanleger geltender Investor) bzw. für einen institutionellen Anleger besuche.

Mir ist bewusst, dass sich die Informationen auf dieser Website nicht an Personen richten bzw. für sie bestimmt sind, in deren Land die Verbreitung solcher anlagebezogenen Informationen nicht erlaubt ist. Mir ist ebenfalls bewusst, dass sich die Informationen auf dieser Website nicht an Adressaten richtet, die von der Aufsichtsbehörde in dem Land, von dem aus die Website besucht wird, möglicherweise als „Privatanleger“ klassifiziert werden. Des Weiteren ist mir bewusst, dass die hier zu findenden Informationen oder Meinungen nicht als Aufforderung zum Kauf oder Verkauf eines Anlageprodukts zu verstehen sind. Es sollen auch keine solchen Anlageprodukte oder Dienstleistungen Personen angeboten oder verkauft werden, in deren Land ein entsprechendes Angebot, eine Aufforderung, ein Erwerb oder Verkauf ungesetzlich wäre. Fidelity äußert auf dieser Website seine eigenen Ansichten und Meinungen, die sich jederzeit ändern können, ohne dass eine Verpflichtung zur Aktualisierung besteht. Kein Inhalt dieser Website ist als Beratung in Bezug auf Geldanlagen, Steuern, rechtliche oder sonstige Aspekte zu verstehen. Die hierin enthaltenen Informationen können sich ohne entsprechende Mitteilung jederzeit ändern.

Diese Website wurde von FIL Fund Management Limited eingerichtet, einem Unternehmen mit Sitz auf bzw. nach dem Recht der Bermuda-Inseln, das über eine Genehmigung der Bermuda Monetary Authority zur Ausübung von Investmenttätigkeiten verfügt. Weder FIL Fund Management Limited noch sein Mutterunternehmen FIL Limited oder irgendein anderes Konzernunternehmen oder verbundenes Unternehmen übernimmt die Gewähr dafür oder erklärt, dass die Informationen auf dieser Website zutreffend, vollständig oder für jedwede Zwecke geeignet sind.

Ich erkenne an, dass weder FIL Fund Management Limited noch FIL Limited oder ein anderes Konzernunternehmen bzw. verbundenes Unternehmen für etwaige Verluste haftet, die direkt oder indirekt aus einer auf dieser Website beschafften Information resultieren. Durch Annahme dieser Erklärung bestätige ich auch mein Einverständnis mit den Nutzungs- und Geschäftsbedingungen dieser Website, die ich gelesen und verstanden habe.

Fidelity International, das Fidelity International Logo und das F-Symbol sind Markenzeichen von FIL Limited, einem nach dem Recht der Bermuda-Inseln eingetragenen Unternehmen.

Bitte beachten Sie, dass die FIL Fund Management Limited von der Finanzmarktaufsicht Liechtenstein weder zugelassen noch beaufsichtigt ist.

Diese Website präsentiert Informationen in englischer und deutscher Sprache. Als professioneller Anleger akzeptiere ich hiermit, Informationen in mehr als einer Sprache zu erhalten.

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Analyst Survey 2020: Region by region

by Adnan Siddique

Published 13 February 2020

ResearchAnalyst survey

Below we summarise the key findings from the 10 different regions covered by the survey.

North America: How long can it go on?

North America’s sentiment indicator has fallen back to a neutral position - with analysts reporting that companies are neither bursting with optimism nor bracing for the worst. As the cycle extends beyond historical norms, it is becoming harder to determine exactly where things will go next.

If we discount those sectors regarded as stable (i.e. noncyclical), an overwhelming 34 of the remaining 40 North America analysts now view their sectors as past the initial or mid-cycle growth stage. Consequently, analysts are focusing on the endurance of the cycle, with one analyst citing a positive surprise as: “Anything extending the duration of the cycle”. At this stage of the market, several analysts point to product innovation as being a key requirement for companies to outperform. 

Nearly 40 per cent of analysts think return on capital will fall, mostly driven by higher costs and slower growth in domestic final demand. If consumers finally lose their remarkable resilience, it could signal that we are one step closer to the end of the cycle. Unemployment at record lows in the US may be driving consumer strength, but it is having a limited effect on wage growth. Wages may continue to rise, but most analysts believe the pace of growth is slowing. 

A particularly intriguing result from this year’s survey relates to the impact of the trade war. Compared with other regions, a higher percentage of analysts covering North American companies think that protectionist measures will be harmful to profits over the next year. This indicates that the US, which instigated the most recent trade war and juggles multiple fronts, could stand to lose the most from the ensuing protectionism. As one analyst succinctly put it: “Companies just do not want to invest while trade war uncertainty persists”. 

Europe: Leaning towards growth 

Europe’s sentiment score is just the right side of the expansion threshold at 0.2 (versus 0.5 for last year). Our analysts see growth coming from a couple of directions: capital expenditure and some gains in return on capital. 

Nearly half the analysts expect capex to increase, with a slight tilt to growth over maintenance projects, as well as some M&A. The outlook for return on capital is also quite positive: two-thirds of our Europe analysts predict it will be the same or will rise over the next 12 months. Most of the improvement is expected to come from higher end demand. 

Brexit remains an issue. Our analysts sense companies are still reticent about investing in the UK, possibly because a permanent relationship with the European Union is yet to be negotiated. The UK government’s self-imposed deadline of the end of 2020 to reach a trade agreement means that a ‘cliff-edge’ for businesses could still occur. Considering the trade and regulatory uncertainty, the eventual effects of Brexit on the UK economy are still unclear, highlighted by an industrials analyst who said: “Uncertainty about the UK macroeconomic picture as a result of Brexit has resulted in a reluctance to invest in large UK projects and has seen some companies look to diversify revenues overseas”. 

Europe continues to lead on environmental, social and governance (ESG) issues. While all regions are showing increased focus on ESG, Europe has maintained its lead, with all 49 analysts finding that their companies are placing more importance on implementing and communicating their ESG policies. Climate change is the number one environmental issue. 

This attention to ESG partly explains the greater restrictions the analysts expect on doing business in Europe. Most analysts expect more regulation, with rules around climate change, gambling, pharmaceutical drugs, data protection and digital advertising likely to be beefed up. The past year saw the changing of the guard at the European Commission, European Council, European Parliament and the European Central Bank, and the new cohort of leaders will be eager to make their mark. 

China: Most improved, but still trailing 

At negative 0.4, China’s Sentiment Indicator is bottom of the league, despite improving more than any other region. China is closer than it was to the rest, but still behind. Even though the economy is slowing down, the rate of decline looks set to be modest. The number of analysts expecting their companies to react to indicators associated with the end of cycle has fallen from 70 per cent last year to just 27 per cent this year, while not one of our 26 analysts covering China expects a hard landing. This would seem to suggest cause for modest optimism, however these responses were given before the outbreak of the coronavirus, which has the potential to destabilise this outlook. 

Indeed, even without the epidemic, the components of the Sentiment indicator for China are almost universally decelerating. Return on capital looks particularly bad, with over half of analysts expecting it to decline in 2020. A slightly lower proportion also think capital spending will fall. One ray of light comes from balance sheet strength, which has improved significantly from last year. The perfect balance sheet shouldn’t be too cautious, which may indicate an inefficient use of capital, or too stretched, which suggests a company is taking too much risk. Our China analysts, on the whole, think balances sheets are positioned just about right. But they are keeping an eye on defaults. 

A third of analysts expect the number of defaults to rise slightly, while 4 per cent predict a significant increase, up from zero in 2019. At this level, defaults are not especially worrying and funding costs are broadly expected to stay the same or fall, but this could change quickly given the extent of leverage in the Chinese economy.

China’s pressures are no great surprise. It’s been dealing with two powerful headwinds for some time: an economic slowdown and a bruising trade war with its biggest trading partner, the US. Our China analysts are generally not convinced by the apparent rapprochement on trade between the US and China. Two thirds still believe that Trump’s policies will be negative for their sectors, with one analyst commenting: “Companies are now fully aware that tense US-China relations will be the new norm and thus are not too fixated on short-term developments.” 

Asia Pacific ex Japan/China: Management confidence takes a knock 

The old saying that when the US economy sneezes, the rest of the world catches a cold could equally apply to China and its neighbours in Asia. China’s slowdown appears to be weighing on the rest of Asia. 

Asia Pacific ex Japan/China saw the largest move in the sentiment indicator of any of the regions, but in the wrong direction. The indicator fell from a respectable 0.3 in 2019 to negative 0.3 in 2020. Confidence, or a lack of it, among business leaders is one of the main reasons why. 

Over 80 per cent of analysts in the region report that management teams are no more confident than last year, with a considerable knock-on effect on corporate decision making. A third of analysts covering the region believe capital spending will fall in 2020. And while analysts expect an increasing amount to be allocated to growth opportunities in most other regions, in Asia ex Japan/ China spending on growth is predicted to fall. 

Dividend payouts also look less than promising. Asia Pacific ex Japan/China has the second lowest proportion of analysts who report dividends will rise this year behind China. In fact, the same number think dividends will fall or that there won’t be a dividend payment at all. For a region largely defined by growth, that’s a disappointment and suggests executives are particularly gloomy. 

Perhaps most telling is that when analysts were asked about the scope for positive surprises in the region, the most common answer was some variation of “not much”. 

Japan: Caution prevails despite potential opportunity from ageing population 

Recent economic data from Japan has been weak and this is matched by low confidence among management. Over half of analysts report confidence will be lower this year while just 9 per cent think it will improve. This is despite Japan having the second highest sentiment score, suggesting the actual business environment won’t be too bad. 

‘Fortress balance sheets’ have been something of a trend in Japan in recent years and this looks unlikely to change in 2020. Nearly three-quarters of analysts say balance sheets are too cautious, marked by large cash piles and under use of leverage. And this caution could deepen given that a third of analysts expect leverage to fall further. 

Despite this, opportunities are starting to appear in Japan. There is a sharp increase in the number of analysts judging the country’s ageing population as a business prospect. In the previous four years of the survey, it was viewed as a negative development, but this year more than half of analysts think it will be positive for their companies, as increased demand for healthcare and information technology solutions offsets a shrinking workforce. Demographic pressures could also partly explain why 80 per cent of analysts expect IT spending to rise in 2020.

Government spending is also increasing. Nearly half of our Japan analysts report their companies expect a positive impact from fiscal policies this year, up from only 14 per cent last year. Income tax cuts are expected to offset the consumption tax rises of last year, leaving households with greater capacity for discretionary spending. If the macro picture stays benign (companies in Japan have heightened sensitivity to global risks given the country’s open economy), and fiscal spending materialises, then there could be a range of investment opportunities across different sectors.

EMEA/Latam: Leads the pack again 

For the second year in a row, Emerging Europe, Africa and Latin America’s combined sentiment score beats every other region. Despite protests in Chile, the collapse of the Venezuelan economy, debt default in Argentina and the turmoil in a number of Middle Eastern states, the region’s positive corporate backdrop has held steady. 

Market demand is the reason. Half of our analysts in these regions report that CEOs expect end demand growth to fuel earnings growth. Not one of those CEOs appears less confident than last year, which could explain why only 14 per cent of analysts think investment will be lower this year than in 2019. Overwhelmingly, analysts think this investment will be directed towards growth rather than maintenance projects. 

Nearly a third of analysts think dividends will rise, while none predict a cut. Headcount is expected to rise, wage costs are not expected to be a problem, and balance sheets are positioned fairly cautiously and generally don’t require refinancing. 

Currency volatility could pose a challenge, though. Many EMEA and Latam countries fit squarely into the emerging markets category where performance is traditionally sensitive to movements in the US dollar. A consumer analyst describes the effect as follows: “Revenues are mostly in emerging market currencies, but a lot of costs are linked to the US dollar. This affects gross margins, inflation and sentiment towards the broader economies”. Interestingly, the proportion of analysts reporting high currency volatility has been falling for the last four years, perhaps indicating the gradual maturing of these economies. 

When asked about risk factors, our analysts almost all point to macro and geopolitical events. But they also hint that the region has shrugged these off before and can do so again. Protectionist measures already appear to be having a less negative effect than last year, and with the USMCA (new NAFTA) deal now signed and sealed, businesses in Latin America at any rate should see less impact from trade wars. 

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