Fidelity Worldwide Investment’s latest “Analyst Survey” highlights major themes shaping global investment markets
Bottom-up research is key to finding long-term winners in a slow and drawn-out deleveraging process
HONG KONG, 17 January 2013: Fidelity Worldwide Investment has today released the findings of its third “Analyst Survey” which highlights some of the long-term themes that are expected to shape the global economy and investment markets in the years ahead.
The report explores the themes identified by more than 100 of Fidelity’s fixed income and equity research and fund management professionals across Europe and Asia. As such it provides a rare insight into Fidelity’s fundamental investment process. It is designed to shine a light on some of the companies, sectors, regions and secular themes that Fidelity analysts believe offer the most promising investment opportunities against a backdrop of debt reduction and consequently weak global economic growth.
The report identifies the following long-term investment themes:
- An extended “Age of Deleveraging”. Companies around the world face strong headwinds as a result of public and private sector deleveraging. Unwinding debt is likely to be a multi-year process. This has important implications for investors. From an equity perspective, the current environment greatly adds to the appeal of reliable companies with robust balance sheets (without much debt) and good cash flows that can support healthy and growing dividends. However, the debt problem is not ubiquitous. Many less-developed countries have avoided the kind of debt accumulation that has become problematic elsewhere making emerging markets an attractive proposition in the long-term.
- A continued lack of correlation between investment performance and GDP growth. We live in a two-speed world divided broadly between high-growth emerging economies (high speed) and lower-growth developed markets (low speed). However, this does not mean that investors should turn their backs on developed markets. Select sectors in “low growth” countries may out-perform due to a range of unique factors. In Europe, for example, some multi-nationals with geographically-diversified earnings remain profitable despite the region’s recession. This confirms that investing based on economic growth alone can ignore the elements that determine total returns. These elements are often sector and company specific, requiring thorough bottom-up analysis that differentiates winners from losers.
- Innovation in technology & energy, facilitating a developed market response to rapid emerging market growth. The shale revolution – as well as developments in social networking and smart phone industries - in the developed world will drive strong growth. For example, the US could reduce its dependency on foreign oil by two million barrels a day (or more) over the next five years because of developments in shale energy. This could have a significant impact on the broader US economy, reducing input costs materially, while reducing the US trade deficit.
- A continuing search for income. In a low interest rate world, with ageing populations in many countries, income paying and capital preservation strategies will stay in demand, particularly for investors with longer-term horizons, such as pension funds.
- An ongoing place in investors’ portfolios for China. Chinese stocks have been some of the worst performers in Asia in 2012. However, we believe China remains an attractive long-term investment proposition due to several secular drivers, including increased urbanisation, a rising middle class and a shift from its export-driven economic model to a greater reliance on domestic consumption.
- More generally, consumption will drive global economic growth. Increased affluence and urbanisation in the past decade and the expanding middle class have underpinned the consumption theme. Quality brand names in the West will continue to compete for this new demand and benefit from its growth.
Commenting on the findings of Fidelity’s latest Analyst Survey, Leon Tucker, Head of Equity Research, Asia Pacific, Fidelity Worldwide Investment says: “Since the start of the global financial crisis in 2008, economic and market cycles have become shorter, volatility has increased dramatically, and correlations between asset class have shot up. This background makes life challenging for the bottom-up stock picker. One of the best strategies in this environment is to try to identify stocks that are likely long-term winners, stocks that can weather short-term adverse volatility and provide superior long-term investment returns for our clients. Our edge in fielding one of the largest research teams in Asia (over 40 analysts) gives us the ability to develop long-term relationships with key company managements. These relationships allow us to develop confidence in strategic initiatives and updates on execution progress in our portfolio holdings. We firmly believe that challenge drives opportunity, and that our fundamental research process is geared to finding those stocks and investment themes that will likely provide superior long-term returns. “
Sabita Prakash, Head of Asian Fixed Income, Fidelity Worldwide Investment says: “As Asia's bond markets continue to develop, more opportunities are becoming available. Investors who seek margins of relative safety should consider higher quality investment grade corporate debt, given reasonable yield levels and the predictability that stems from good credit quality. This is an especially important consideration when investing in burgeoning markets, such as Dim Sum (offshore RMB) bonds, where investors would be well-advised to seek better structural protection as market standards are still developing. For investors with a higher risk appetite, Asian high yield bonds still offer attractive levels of regular income, however the asset class is subject to higher volatility based on the market’s risk-on risk-off tendencies. Nevertheless, periods of higher volatility generally prove to be attractive entry opportunities into high yield for more seasoned investors. Our fundamental research process is aimed at identifying the best opportunities across the risk/return spectrum.”
Notes to Editors:
About Fidelity’s Analyst Report
This report presents a snapshot of some of the key investment opportunities identified by Fidelity’s equity and fixed income investment teams across Europe and the Asia Pacific regions. Drawing on this fundamental company research, Fidelity’s analysts highlight some of the broader investment themes that will shape the global economy in the years ahead. The survey is not exhaustive by any means; rather it is designed to shine a light on some of the companies, sectors, regions, and secular themes that Fidelity believes are the most attractive against a backdrop of deleveraging and weak global growth.
This report is based on questions given to more than 100 equity and fixed income professionals in Europe and Asia covering a variety of sectors, designed to extract a selection of their best and most contrarian investment ideas. It was complemented by a number of discussions with heads of research to verify trends and themes across countries, sectors and asset classes
About Fidelity’s fundamental research-driven approach
Fidelity pursues an active investment style based on the deep and comprehensive fundamental research undertaken by our investment teams. Its objective is to deliver superior investment performance by developing a rich and detailed understanding of the anticipated financial evolution of all of the companies in which it invests. Its global research network comprises over 350 investment professionals, based in a range of international locations, including London, Paris, Frankfurt, Milan, Mumbai, Singapore, Hong Kong, Shanghai, Seoul, Sydney, Tokyo, Sao Paulo and Bermuda.
Its portfolio managers are supported by a broad, dedicated team of investment analysts who cover specific sectors and markets. The analysts are responsible for maintaining investment recommendations based on fundamental, proprietary research. Fidelity does not impose top-down investment views on its portfolio managers, who are responsible for their own investment decisions. At the same time, they have access to extensive macro-economic analysis and market cycle insight to inform portfolio construction.
FIL Limited and its subsidiary companies serve the major markets of the world by providing investment products and services to individuals and institutional investors outside the US. The FIL Organisation manages a total of £143.7bn of assets. (source: Fidelity as at 30 Sept 2012)
Any opinions expressed are made at the time of writing and can be subject to change without notification.
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