Overwhelming positivity was the dominant sentiment, according to a survey of the company sentiment of 143 analysts from Fidelity International.

The most positive reaction of the Fidelity Sentiment Indicator, and the highest rate of improvement, was observed for China, which jumped to a score of 6.4 out of 10 for 2018, up from 5.7 last year and 4.1 in 2016. One-third of the China analysts--more than from any other region Fidelity covers--expect their companies to expand leverage.

The indicator is an aggregate measure of corporate confidence which considers management confidence, firms’ capex and dividend plans, balance sheet strength, and forecasted Returns on Capital. Levels above five indicate that positive perceptions outweigh negative perceptions.

“For the first time in four years, expectations for new capex spending in China have turned positive. Management teams across a wide swathe of sectors are shifting from maintenance to growth capex, reflecting the drive to innovate and upgrade domestic value chains," says Catherine Yeung, Investment Director, Equities, Fidelity International.

“Borrowing will increase to fund these expansion plans. This is despite the fact that 62 per cent of our China analysts report that their firms anticipate higher funding costs in 2018."

China: few concerns about an economic 'hard landing'

Are management teams in your sector concerned about a hard landing in China's economic growth?
chart
Average responses per sector.
Source: Fidelity Analyst Survey 2018, Fidelity International, February 2018

Though challenges remain, including ongoing wage growth, on the back of China’s rising affluence, ageing population, and shrinking workforce.

According to Yeung, 86 per cent of China-focused analysts expect their companies to raise wages this year. In contrast, 72 per cent of all analysts globally expect companies to increase salaries.

Japan in rude health

Japanese companies are also particularly bullish about prospects for the year ahead. The country’s sentiment reading stands at 7.0 out of 10, higher than any country or region in this year’s survey.

Such top marks were bolstered by corporate finances that are in rude health, and expectations of stable or increasingly generous dividend payments, according to Jeremy Osborne, Investment Director, Equities, Fidelity International.

Japan's balance sheet conservatism

How would you characterise the efficiency of the overall balance sheet in your sector?
chart
Source: Fidelity Analyst Survey 2018, Fidelity International, February 2018

He points to Japan Prime Minister Shinzo Abe's economic reforms as a key driver of these elevated levels of confidence, having enhanced capital efficiency and driven shareholder returns to record levels.

Few other countries can boast such conservative balance sheet management: 47 per cent of respondents said balance sheets in Japan were very safe and cautious. An additional 20 per cent said that balance sheets were modestly cautious.

“This improvement looks set to continue: almost half of our Japan analysts predict increasing returns on capital this year. Wage and price inflation expectations, while meaningful, remain subdued. The country is showing signs of shifting away from the deflationary mindset that has held sway for years," Osborne says.

Looking beyond China and Japan, there has been notable sequential improvement in corporate confidence across the region, which stretches from Australia to India. The Asia Pacific ex Japan and China Sentiment Indicator sits at 6.2, compared to 5.7 last year and a low of 5.0 in 2016.

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