Region – US, EMEA & Latam

Region – US, EMEA & Latam

US: A second wind?

Sentiment indicator 6.6 vs 6.2 last year

Analysts continue to be positive about the US even after a strong 2017. The sentiment indicator has ticked up to 6.6, exactly in line with the global average. Dividend growth is the main contributor to its sentiment indicator increase, with two thirds of analysts predicting their companies will increase pay outs - that’s more than for any other region.

What is worrying many investors about the US is that the US Federal Reserve might raise interest rates more quickly and more frequently than expected if wage inflation accelerates driven by low unemployment. Among our US analysts 65 per cent expect a moderate rise in wages, but only 12 per cent expect a strong rise. That suggests our analysts expect low unemployment to have an upward pressure on inflation, but in a controlled way.

President Donald Trump’s policies are expected to have a moderately positive impact by most analysts. Meanwhile, over 40 per cent of analysts say there will be less regulation - an optimism shared by almost no other analysts elsewhere in the world. One of Trump’s other policies is advantageous tax rates on repatriated capital. And where will that cash go? Forty six per cent of US analysts think their companies will engage in share buybacks, while 19 per cent think it will fund more M&A and 12 per cent say it will mostly go towards paying down debt. None think the capital will fund higher dividend payments.

The continued focus on M&A shines through in other findings, too. Half of our analysts think there will be a moderate amount of M&A, while another 42 per cent expect M&A to be a ‘large’ focus or a ‘huge strategic priority’ for their US companies. But that’s not the only way industries are changing: the number of analysts expecting disruptive technology to have a moderate or high impact has risen significantly this year.

Per cent of all responses. Source: Fidelity Analyst Survey 2018

Eastern Europe, Middle East, Africa and Latin America: Plenty of bright spots

Sentiment indicator 6.5 vs 6.4 last year

Although the sentiment score has risen relatively little from last year, its score well above the mid-point level of five (above which positive responses outnumber negative ones) means corporate fundamentals continue to improve.

There are many bright spots in Eastern Europe, Middle East, Africa, and Latin America. The region is benefitting from higher commodity prices and several recent high-profile corruption cases fading from public attention in Latin America. This has resulted in optimism among companies. Two-thirds of our analysts covering these regions say management teams are ‘more confident’ while a large majority say that CEOs expect end-demand growth to drive earnings growth. This is consistent with earlier-stage growth; two thirds of our analysts believe the companies they cover are still either in early expansion or mid industry cycle. By contrast, other analysts generally say their companies are in more mature stages.

More analysts covering this region than anywhere else expect higher inflation to allow companies to raise margins. This bodes well for workers, as reflected in the relatively high share of analysts (almost a third) who expect strong wage increases this year.

But there are concerns. Balance sheets are not as safe as elsewhere; nearly a third of analysts think they are moderately stretched. The Trump administration in the US could also pose risks; 46 per cent of analysts already expect a moderately negative impact from US policies over the next two years. Additionally, fewer analysts report a rising ESG emphasis among their companies than last year, in contrast with other regions. Bribery and corruption are the top concerns.

Per cent of all responses. Source: Fidelity Analyst Survey 2018.

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