Fidelity International among hundreds of analysts. To understand what’s coming in 2023, you have to look at the evolution of 2022. Businesses faced one of their most difficult years in recent memory in 2022, when the global economy suffered a confluence of destabilizing factors.
Now that we are entering a 2023 marked by higher prices and interest rates, companies face another difficult year. However, there is light at the end of the tunnel and China has been at the forefront of the recovery. The greatest optimism seems to have arrived. At least, for investment professionals in the responses to surveys.
Fidelity International’s annual Analyst Survey examines the views of its experts around the world, who synthesize bottom-up analytics information from approximately 15,000 business interactions to spot key trends in the business landscape. According to this study, 60% believe that their sectors are already in a slowdown, in a mild recession or worse. However, if we look a little further, just over half of those analysts expect the business cycle to turn positive again by the end of 2023.
On the occasion of the presentation of the survey results, Fiona O’Neill, Head of Strategic Initiatives in Fidelity International’s International Investment Studies Department, points out that the conclusions of our survey could come “in contradiction with the prevailing tone after of a year in which the blows dealt by the Russian invasion of the Ukraine have coincided with the progressive end of a decade of rising stocks and cheap money.”
But from a broader perspective, the expert from the US manager believes that they are “in line with economic logic” and points out that as companies see themselves at the bottom of the economic cycle, they begin to think about upcoming opportunities and Invest in order to position yourself against your competitors.
“According to the survey, cost pressures will peak in most sectors and regions in the first half of the year. China, assuming its push to reopen, will revive and companies in materials, utilities and technology will reactivate the inverter mode, pushed in part by the environmental transition, ”he says.
The Chinese effect
Now that China is leaving behind its zero COVID policy, its economy appears to be at a different point in the cycle. Most analysts covering coverage expect revenue to grow this year, the highest proportion of any region. Reinforcing this bullish tone, in Fidelity’s most recent monthly surveys, which track short-term changes in sentiment, China appears as the only region where Fidelity analysts detect confidence among corporate executives in December and January. It was in December that China began to ease restrictions and prepare to reopen.
However, this optimism is tempered by concerns about a possible outbreak of Covid, since China has gone from zero tolerance with infections to an accelerated reopening. O’Neill also comments: “Businesses have responded positively to the relaxation of China’s zero COVID policy and stocks have rallied rapidly since December. However, companies could experience worse performance in the near term due to the absence of employees and, taken together, we foresee that the path could be accidental before COVID normalizes.”
preparations for everything
Despite cautious optimism heading into the end of the year, the difficulties ahead are evident in the wide range of data provided by the survey. Loyalty analysts forecast an increase in debt defaults over the next twelve months.
The recent increase in shareholder remuneration will fade, while M&A activity will slow down; In this sense, 73% of Fidelity analysts affirm that the operations that they do expect will be complementary and smaller. Around three-quarters (74%) of respondents say that, for now, boards are focusing their attention on cutting costs and propping up revenue, rather than investing for growth or rewarding shareholders.
Geopolitical concerns, fueled intensely by the Russian invasion, are also growing rapidly and the net negative survey reading on this topic has likely doubled. Fortunately, the vast majority (90%) of Fidelity analysts say the companies they cover are placing the same or more emphasis on environmental, social and governance (ESG) issues than they did a year ago.
However, only 8% of Fidelity analysts expect the companies they cover to reduce their negative impact on terrestrial biodiversity over the next twelve months. In the case of oceanic biodiversity, this figure is 6%. Ned Salter, Global Head of Investment Research, adds that the survey shows that when it comes to the ESG dimension, companies are “listening and acting”.
Suggestions related to biodiversity are still in their infancy in most companies, but it is an area of dialogue that we want to promote with our investees this year. “The recent United Nations Conference on Biodiversity in Montreal has given greater visibility to biodiversity and its relevance to achieving carbon neutrality, and this has given new impetus to our conversations with companies on this issue,” concludes.