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Welcome to Fidelity

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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).

By accessing the restricted area I confirm my agreement with‚ and understanding of‚ the following terms of use and the legal provisions. If I do not agree to the terms and legal conditions‚ I must not access this website or any pages thereof. I acknowledge that access to the information contained on this website is available to "Qualified Investors" only as defined below. A private individual or legal representative or any other party without this qualification should not enter this website.

By accessing this website or any of its pages‚ I confirm that I am a qualified investor in accordance with Art 10.3 CISA.

The following are considered to be qualified investors:

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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.

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.

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Riconosco che le informazioni contenute in questo sito web non sono dirette né sono destinate alla distribuzione o all’uso da parte di soggetti in qualsiasi giurisdizione in cui la diffusione di tali informazioni relative allinvestimento non è consentita. Riconosco inoltre che le informazioni contenute in questo sito web non sono dirette a soggetti che potrebbero essere definiti "investitori retail" dall'autorità di vigilanza nazionale del paese dal quale si accede al sito stesso. Riconosco che le informazioni o le opinioni contenute in questo sito web non devono essere interpretate come un'offerta di vendita o come la sollecitazione di un'offerta di acquisto di un prodotto o un servizio di investimento, né tali prodotti o servizi di investimento possono essere offerti o venduti a soggetti di giurisdizioni nelle quali tale offerta, sollecitazione, acquisto o vendita sarebbero illegali. Questo sito web contiene giudizi e opinioni espressi da Fidelity, che sono soggetti a modifica e rispetto ai quali non sussiste alcun obbligo di aggiornamento. Nulla di quanto contenuto in questo sito web va considerato come una consulenza di investimento, fiscale, legale o di altra natura. Le informazioni qui riportate sono soggette a modifica senza preavviso.

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Important information

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.

Wichtige Informationen

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.

Wenn die obige Erklärung zutrifft, klicken Sie bitte auf „Ich stimme zu“, um auf die Website zu gelangen.

Please scroll down to read through all of the terms.
Merci de bien vouloir faire defiler ce message jusqu’à son terme.
Bitte scrollen Sie nach unten, um alle wichtigen Informationen durchzulesen.
Per favore scorri verso il basso per leggere tutte le condizioni.
スクロールダウンし、全ての注意事項をよくお読み下さい。
Please scroll down to read through all of the terms.
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Illustration: Rebecca Hendin

Fidelity Analyst Survey 2019: The end of optimism

by Benjamin Moshinsky

Published 22 February 2019

ResearchRecessionAnalyst Survey

While the responses to Fidelity's 2019 analyst survey point to a fall in management confidence and a slowdown in growth for many industries, they do not indicate an imminent recession.

All analysis starts with a question. To investigate their companies’ plans, prospects and threats, Fidelity’s 165 analysts ask tens of thousands of them a year. We distil these down to around 60 questions for the annual survey, and here, the pot is simmered until just one remains: does the data suggest an imminent recession?

While a decline in overall economic activity may still be a way off, we can already discern its faint outline in the numbers. From the point of view of corporate sentiment, an exuberant start to 2018 has given way to a cautious 2019. Our analysts are reporting the first signs of a decline, aided and abetted by political volatility, rising input and funding costs and weaker consumption.

But it would be a mistake to interpret this as a signal to retreat. Throughout the survey our analysts report pockets of optimism and success. As the business cycle turns, life is becoming more difficult for companies - the good ones have to work harder to win and our research team’s job is to find them.

Globally, our sentiment indicator, an aggregate measure of corporate confidence through the eyes of our analysts, suffered its sharpest drop ever, falling from 1.6 in 2018 to 0.6. Despite the alarming plunge, it remains in positive territory - this is not a retrenchment. More detailed analysis brings out the light and shade. China was the hardest hit region, with sentiment declining from 1.4 to -0.4 (a number below zero indicates worsening sentiment), although government stimulus has proven effective at restoring confidence in the past and may do again.

Within the sectors, healthcare was the only bright spot, with sentiment increasing for the third year running from 1.1 to 1.4. Nominally, consumer discretionary analysts were the most downbeat, averaging -0.5 across the sector.

Source: Fidelity Analyst Survey 2019.

Sputtering engine

The already mature business cycle is slowing further, although the falls in sentiment should be taken in the context of a buoyant 2018 survey. A third of analysts globally reported their sectors were in a slowdown or recession versus 13 per cent last year. Only a fifth report an expansion, against 35 per cent in 2018. Analysts are now split 51 per cent to 49 per cent about whether we are at the end of the business cycle, compared with 68 per cent for “no” last year.

The pessimism has two core drivers, a weaker consumer and increasing costs of doing business. Both of which threaten to squeeze profit margins in 2019. This is borne out by the marked decrease in analysts expecting better returns on capital, from 48 per cent in 2018 to just 18 per cent now. China dropped from 43 per cent to just 7 per cent and North America from 50 per cent to 20 per cent. Globally, four out of 10 analysts foresee a negative return on capital over the next 12 months.

Every sector has its own indicator of the late cycle. A US banking analyst is watching “the emergence of alternative sources of capital, such as hedge funds, insurance companies and loan funds prepared to lend at prices and with covenant structures that banks aren’t comfortable with.” Meanwhile homebuilders are cutting back on new land purchases, our analysts report, as valuations start to look expensive.

Source: Fidelity Analyst Survey 2019.

Consumer scepticism

The anxiety is unevenly spread around the world and this year, China stands out. Around half of analysts covering the region report a drop in management confidence, versus just 10 per cent last year. One of the global economy’s great engines, the Chinese consumer, is in a stall. And corporate managers are preparing to cut outflows as a result. Almost half of the China analysts expect a reduction in capex, against 18 per cent in Northern America and only 8 per cent in EMEA LatAm.

A good example is the country’s car market, which, with 25 million vehicles sold annually, is the biggest in the world. In the last four months of 2018, car sales “cracked,” according to an industrials analyst. They registered double-digit, year-on-year declines. This is a meaningful change in a market that hasn’t known a down year in a decade and accounts for a good proportion of global spending on higher spec, higher margin car models.

Similarly, the luxury industry has become more dependent on the Chinese tourist for growing sales around the world, and the country is home to around 35 per cent of its consumer base. The high double-digit sales growth of the past few years is expected to moderate to around 6 per cent in 2019, but fears are growing it could sink to zero. Consumer confidence is in part driven by the wealth effect, which sees spending on discretionary spending increase when the stock market rises. “Luxury managers are concerned the feel-good factor is leaving China” following the market declines in 2018, a luxury goods analyst says.

Source: Fidelity Analyst Survey 2019.

Where demand falters, so does pricing power. For China, half of analysts expect price rises below consumer price inflation, versus a quarter for North America in 2019. A third of all analysts globally report this to be a problem as input costs will rise, although this is at levels similar to 2018.

On the cost side, wages are the rising across the board, with almost three-quarters of analysts globally expecting increases. Funding costs are also on the up, although it is worth noting that analysts completed the survey at the end of last year, when the market expected the US to continue on a path of monetary tightening. Globally 48 per cent of analysts foresee an increase in funding costs, up from 25 per cent last year.

In Europe, companies facing the prospect of increased funding burdens are breaking with regional tradition and finding lenders among investors rather than banks. Forty-six per cent of analysts expect higher funding costs in Europe, and of that 52 per cent report companies intend to meet their funding needs through increased use of bond issuance. Our financials analysts observe a trend away from bank-dominated corporate funding in Europe towards the capital markets. Corporate issuers have been attracted to issuance by low costs of borrowing in the region.

While only one in five analysts reports a rise in corporate leverage globally, the same as 2018, around two-thirds of those analysts observing this trend say rising debt ratios are driven by deteriorating cash flows, up from 31 per cent in 2018.

Source: Fidelity Analyst Survey 2019.

Painful politics

Meanwhile, political turmoil has added an element of chaos to the challenging business environment. Analysts across the range of sectors and geographies report that the unstable geopolitical backdrop is increasing costs of business and driving a pessimistic outlook. The worst affected include the IT, energy, consumer and industrials sectors, where analysts all report increased risks. The impact can be physical. For example, French luxury stores had to shut their doors as the Gilets Jaunes citizens’ protests raged in Paris in the lucrative run-up to Christmas. The street battles also persuaded high-spending tourists to stay away.

Healthcare, ostensibly the most positive sector, is not invulnerable to political risk. In the US, politicians on both sides of the party divide have called on pharmaceutical companies to cut costs to consumers, elevating the risk of an enforced change to pricing models over the next few years. Meanwhile, the Federal Drug Administration was not able to accept new drug approval filings during the US government shutdown, slowing the rate at which new drugs could be released to the market.

Source: Fidelity Analyst Survey 2019.

Most participants in this cycle may be finishing their espressos and calculating the bill, but a few around the table are still deciding on dessert. Healthcare has been a beacon of sustained optimism, with analyst sentiment growing consistently more positive every year since 2016. As a less economically sensitive sector, its companies are less exposed to slowdowns in demand. “People will keep spending on healthcare, even if that means forgoing the latest iPhone,” as a healthcare analyst said. There are also secular trends that are buoying the sector, including the increased demands for treatment from an ageing population and expanding obesity rates.

Conclusion

Our analysts’ responses do not suggest a full-blown recession in the next six to 12 months, but the overall picture is less rosy than last year. We have taken another step towards the end of a cycle that started a decade ago amid the economic wreckage of the financial crisis.

The signs are there, report analysts. Managerial confidence is dented by increasing costs and decreasing ability to pass them on to the end consumer, coupled with political uncertainty and trade friction between China and the US. 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.

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