The key findings of the survey include a recovery in sentiment globally, most importantly in Asia and in China, Catherine Yeung, the firm’s Hong Kong-based investment director for equities, said on Wednesday at a media briefing.
According to Yeung, the recovery of sentiment toward China so far in 2017 is staggering, as it increased from “cooling sentiment” toward a “warming sentiment”.
Global indicator breakdown
Source: Fidelity International
“Balance sheets [in China] are particularly healthier than three years ago,” Yeung said.
In addition to balance sheets, Chinese companies have also built up buffers of free cash flow to offset rising cost prices, according to Yeung. Because of that free cash, Chinese companies, including some of the state-owned enterprises, are now looking to return some of this cash to minority shareholders.
Yeung said that investors should expect more dividend payments from China to be released, citing as an example coal producer Shenhua, which announced a special dividend payout last week.
“The payout ratio in [Asia ex-Japan] is only about 35%. But out of all the information we’ve gathered, speaking with management teams as well as our analysts, we expect this payout ratio to increase,” she said.
Besides strong balance sheets, the analysts are seeing increasing return on capital, not just in China but globally, according to Yeung.
She said that demand from end-consumers is driving earnings growth for companies. The case was different from the previous year Fidelity conducted the survey, when earnings were driven by cost reduction.
Capex down
However, on the capital expenditure front, analysts expect spending to fall further in China as the export-led economy continues to transition to growth based on domestic consumption, the survey said.
According to Yeung, the case is similar in India, where capital expenditure is not picking up.
Capex expectations
Source: Fidelity International
Protectionist risk
According to Yeung, one of the biggest risks that the firm’s analysts are seeing would be trade protectionism.
According to the survey, a majority of the China analysts, as well as those that cover Asia-Pacific and Japan, said that protectionist trade policies in the US or elsewhere would have a moderately negative impact on the companies that they cover.
Source: Fidelity International
Although there has been a synchronised pick up of trade globally, companies are still in a fragile environment, according to Yeung.
“From an exporting perspective, the supply chain is so heavily embedded in [Asia-Pacific], be it IT or textiles. If we’re going to see any notion of extreme protectionism put in place by President Trump, then this could have an impact on sentiment.”
In terms of sectors globally, concerns about protectionism are shared across the board, with IT, industrials and financial companies viewed as being most vulnerable.
Source: Fidelity International
The survey took place in December and included responses from 146 analysts globally, who answered a 58-item questionnaire that covered five indicators regarding sentiment: management confidence, balance sheet strength, capital expenditure, dividends and return on capital.
Of those 146 analysts, 23 analysts cover Chinese equities and fixed income, a Hong Kong-based spokeswoman said, noting that their views are on the companies they cover and not asset classes.
