Fidelity 2019 Analyst Survey

Each year, Fidelity surveys its global analyst team to measure the pulse of the corporate landscape - a bottom-up approach that is unlike many other top-down macroeconomic surveys.

The 2019 Fidelity Analyst Survey aggregates the data from some 16,000 meetings that our 165 analysts  have had with companies in the past year.

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Key findings for 2019:

  1. Amid the negative headlines dominating newspapers around the world, the obvious first question to ask is whether the data shows an imminent recession. This year, our survey says no. But more analysts are reporting slowdowns in their industries, while political volatility, increasing input costs, and rising funding prices are denting managerial confidence.
  2.  It is clear some companies will struggle. However those that make the right strategic decisions and continue to innovate are likely to excel even in challenging times. It is only through our analysts’ frank assessment of business conditions that they are able to identify these opportunities.
  3. The survey results are covered sector-by-sector and region-by-region. Of the former, only healthcare shows an improvement in sentiment from last year. The indicators for the consumer discretionary and utilities sectors show that analysts expect the prospects for their companies to decline.
  4. Similarly, analysts in all regions are less positive than last year, but China analysts are the only ones to report a worsening outlook. They are also the most pessimistic about their companies’ return on capital over the course of 2019, reporting slowing demand as the principal cause.
  5. Talk of China soon leads to talk about the US. And that leads inevitably to discussions about President Donald Trump. Concerns about the US administration’s approach to trade and business are mounting. For the first time our analysts report that the net impact on companies is expected to be negative.
  6. Analysts are also reporting their companies’ growing concerns over environmental, social and governance issues. More than two thirds of analysts globally said that the companies they cover are thinking about ESG, up 12 percentage points on last year. However, they paint an uneven picture and not all sectors register the same level of concern.

Hear from our investment experts

Of the thousands of questions to be posed by our analysts to their companies in 2019, no doubt a fair proportion of them will be focused on how they intend to navigate these risks.

So, how should we as investors think about navigating the late-cycle dynamics that our survey results reveal?

We asked members of our portfolio management team to reflect on the results and discuss what it might mean for equity and fixed income market investors over the coming months.

Encouragingly, they still see pockets of opportunity although an active approach - underpinned by rigorous security selection - will become increasingly important to plot a steady course, as uncertainty builds in both the board room and financial markets.

Toby Gibb
Head of Investment Directing, Equities

“The results of the analyst survey show a very clear view that we are late in the cycle. 

Investors should not be too disheartened, as the volatility we tend to experience at this point in the cycle can create opportunities to invest in long-term growth opportunities at attractive valuations. 

Structural themes such as ageing populations, the growing middle class, urbanisation and technological disruption are here to stay and will benefit exposed companies for many years to come. These secular trends tend to be uncorrelated to broader GDP growth, offering investors diversification and the potential to benefit from long-term growth.  

Certain themes may benefit from a slowdown in growth - for example, companies are more likely to accelerate plans to increase automation as a way to protect margins in the face of falling revenues, particularly if labour costs rise.

Finally, the survey comes out very positively on healthcare, a sector that tends to hold up well in a weakening macroeconomic environment and one that stands to benefit from rising demand due to ageing populations and the subsequent increased demand for drugs and medical care.“

Jing Ning
Portfolio Manager - Fidelity China Fund

“The Chinese economy is very cyclical in nature and liquidity dependant. The liquidity cycle bottoms when policy makers have overwhelming growth concerns. Therefore, earning momentum has never been a good leading indicator for the equity market, and I view it as more of a lagging indicator. 

On a year-to-date basis, the equity market has rallied due to a dramatic change in sentiment, which is driven by the inflection point of global liquidity cycle and a potential Sino-US trade war resolution. Post this rally, Chinese stocks trade at a more reasonable valuation and therefore further gains need to be supported by fundamentals. In my opinion, there is a significant difference between monetary easing in early economic cycle and late cycle.”  

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