Asia is a “bright spot, especially Japan”. The country is ahead of others for expectations for capital expenditure, returns on capital, dividend increases, ability to pass on costs to consumers, and whether its companies will be in an expansionary phase of the business cycle by this time next year, according to the Fidelity survey.
Indeed, “Japan is set to become one of the world’s economic bright spots in 2024”, according to the survey. “88% of Japan analysts expect their sectors to be in expansion in 12 months’ time.”
Analysts covering Japan are also the most optimistic about widening earnings margins. The optimism contrasts with a higher level of caution seen 12 months ago, when nearly a third of Japan analysts said that the company CEOs they covered were expecting no earnings growth in 2023. The current survey found all Japan analysts saying that CEOs expect earnings to grow, said Fidelity.
Fidelity analysts conduct more than 20,000 company meetings every year, and analysts globally are surveyed each year. For the first time since the pandemic, more of Fidelity analysts think that cost inflation for companies throughout the world will fall rather than rise in the year ahead as inflation and labour wages seem to be normalising.
For most sectors, the analysts who cover them expect that they will show improvement this year, with the proportion who say their sector is in expansion mode rising from 52% now to 61% who expect that to be the case in 12 months’ time. Most CEOs globally expect earnings to grow.
Even China, whose recovery from the Covid era, “while still a work in progress, looks to have received some benefit from recent stimulus measures”.
For instance, first-time bond defaults in the onshore market fell sharply. Low borrowing costs are likely to have helped companies service their debt and default risks are expected to stay low as the People’s Bank of China unveils more easing measures in 2024.
About two thirds (63%) of Fidelity’s China analysts say the Chinese companies they cover are currently in an expansionary stage of the business cycle, up from 44% a year ago.
Perhaps surprisingly, only 28% of all Fidelity analysts surveyed say the current geopolitical backdrop is encroaching on investment plans – the smallest proportion of analysts to say this since we started asking this question in 2017.
Nevertheless, Fidelity believes it is “vital to be invested in companies that have resilient cyclical business momentum and to focus on opportunities with exposure to structural themes”.
For instance, there are a “handful of sectors, namely communication services, energy, financials and utilities, where responses suggest conditions may prove tougher as the year goes on”.
