For the first time since the pandemic, more analysts think companies’ cost inflation would fall instead of rise in the year ahead as inflation and labour wages seem to be normalising, according to Fidelity International’s annual Analyst Survey.
The survey, conducted in December 2023 involving 137 analysts from around the globe, found that conditions are settling into place for companies to look towards expansion.
The analysts surveyed expect an improvement for most sectors in 2024. The proportion who say their sector is in expansion mode, expecting it to be the case in 12 months’ time, has risen to 61% from 52% previously. They note that most CEOs also expect earnings to grow.
Asia appears as a bright spot, especially Japan where expectations for revenue and earnings growth in 2024 are higher than for any other region. 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.
Meanwhile, China’s recovery from the Covid-19 era — while still a work in progress — seems 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.
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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. Further stimulus and a gradual adjustment by Chinese companies to a new economic backdrop should provide a year of stabilisation after a turbulent 2023.
The significant number of elections taking place this year has led to the concern of the risk of disruption. However, most analysts (65%) say the companies they cover are not talking about elections at all.
Of those that are, there is division among companies when it comes to talking about election risks. 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 the firm started asking this question in 2017.
