Volatility in global politics, increasing input costs and rising funding prices are causing one of the largest drops in wealth managerial confidence Fidelity International has recorded, according to its 2019 analyst survey.
The report, Analyst Survey 2019: The end of optimism, warned that positive sentiment is waning among analysts as the end of the economic cycle draws near, with a third of analysts now saying their sectors were in a slowdown or recession, in contrast to 13 per cent last year.
The study was based on data from some 16,000 meetings Fidelity’s analysts had with companies in the past year.
Analysts are now split 51 per cent to 49 per cent on whether the economy is at the end of a business cycle, compared with 68 per cent answering “no” last year, the research said.
Globally, four out of 10 analysts foresee a negative return on capital over the next year, the report showed, with the pessimism having two core drivers, a “weaker consumer and increasing costs of doing business,” both of which “threaten to squeeze profit margins in 2019”.
Analysts in all regions were less positive; China in particular displayed more anxiety, with around half of analysts covering the region reporting a decline in management confidence, compared to 10 per cent in the prior year.
For the first time, analysts were also found to expect the US administration’s approach to trade and businesses to have a net negative impact on companies.
“The results of the survey said yes there is quite a big fall in confidence and there is a slowing of growth coming through but there is not an imminent recession; that’s the feedback from the analysts,” Viral Patel, director of research at Fidelity, said.
“The sentiment drop has been really sharp, from 1.6 down to 0.6, it’s one of the biggest we’ve seen in the years we’ve done this survey. But it’s still a positive sentiment.”
Global sentiment had been found to peak last year, following a plunge in 2016.
Notably, more than two-thirds of analysts globally said the companies they cover are thinking about ESG, up 12 per cent from last year, although the concern was inconsistent across sectors.
Healthcare was the only sector in the survey that showed an improvement in sentiment from the year before, with the indicators for the consumer discretionary and utilities segments showing that analysts expect the prospects for their companies to decline.
Toby Gibb, head of investment directing, equities, Fidelity, said investors should not be disheartened as volatility can create opportunities to invest with long-term growth in mind.
Certain themes may benefit from a slowdown in growth, Mr Gibb noted, with companies being more likely to increase automation to protect margins if labour costs rise.
“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,” Mr Gibb said.
“These secular trends tend to be uncorrelated to broader GDP growth, offering investors diversification and the potential to benefit from long-term growth.”
Healthcare, he noted, stands to benefit from rising demand due to the ageing population for drugs and medical care.
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