Confidence among the world’s largest companies is at a three-year high, Fidelity International claims.
This is the conclusion the asset manager drew from interviews with almost 150 equity and fixed income analysts, based on their 17,000 meetings with corporate decision-makers. This latest study, which is based on five components of corporate health, reverses the findings of Fidelity’s 2016 Analyst Survey, which painted a less upbeat picture.
Return on capital, management confidence and spending were set for a decline for those surveyed last year. However, the Global Sentiment Indicator (see chart) is now back in what Fidelity describes as “warming territory”. Such bullishness is seeing chief executives switch their focus to demand-led earnings growth from last year’s cost-cutting strategies.
Corporate conditions are strengthening across the globe. The largest improvement was recorded in Eastern Europe, the Middle East, Africa and Latin America, where the indicator jumped to 6.4 from 2.7 in 12 months. Confidence in China recovered from last year’s lull and is now at a level last seen in 2014.
Helping to drive this change is improving optimism for old economy sectors, such as energy and materials, which have fared poorly in recent years. The rising price of oil and demand growth have seen fears of a recession subside, pushing investment levels higher and forcing an improvement in corporate fundamentals. One of the more surprising findings from this year’s survey is that discretionary consumer companies were at the foot of the sentiment indictor, despite the cyclical upswing.
“This reflects the fact risks to incumbents from waves of industry-led and consumer-led disruption are significant,” Fidelity equity research director Michael Sayers said. “Spending continues to shift from offline to online, disrupting existing business models, intensifying competition and squeezing profit margins.” At the other end of the table is IT, where increased spending is forecast across all regions. Many believe that higher returns on capital and dividends are on the way. “IT’s position is unique,” Sayers said. “It is the disruptor for all other sectors, but the sector itself is not disrupted by those other industries. While certain consumer markets such as smartphones are relatively mature, there is still considerable scope for IT to penetrate other sectors such as industry and agriculture.”