Fidelity Pulse: COVID-19 puts spotlight on social issues

New appointment for Bennelong to support growth
May 21, 2020
WealthO2 appoints new CTO Matthew Done
May 27, 2020

MEDIA RELEASE: The coronavirus crisis will have a profound impact on companies’ approach to social issues, according to the latest Pulse Survey of Fidelity International’s in-house analysts. 

Over half of Fidelity’s analysts believe companies will step up their focus on workers, consumers and the wider community as a direct result of the pandemic.

Chart 1: Social issues drive corporate change

How will the Covid-19 crisis affect your companies’ approach to social issues?

One consistent message across many sectors and regions is a new focus on employees. This takes the form of improved safety, partly in response to the pandemic, but also a longer-term effort to improve employee satisfaction with better conditions and in some cases, higher pay.

Fiona O’Neill, deputy head of equity research, comments: “The health of staff has been at the forefront of company managements’ minds, and our analysts from just about every region and sector confirm that companies will devote more attention to employees’ safety and wellbeing in the future. But the changes will be deeper and broader than just that.

“The survey responses also demonstrate that the global virus pandemic will accelerate a wider move towards stakeholder capitalism. There are many examples of this emerging – from European telecoms companies offering free data or devices to people in vulnerable demographic groups, consumer staples firms increasing their involvement in public hygiene initiatives and even pharmaceutical companies developing vaccines with plans to distribute at cost price. How persistent the post-virus changes prove to be, and whether additional costs will depress margins will emerge in the months to come.”

Situation challenging but optimism building 

Other parts of the survey confirm a continued challenging backdrop for companies. Cuts to earnings forecasts are about as large as those expected last month whether the disruption abates from here or continues for the rest of the year. 

Chart 2: Corporate earnings remain under pressure

In the event that the Covid-19 outbreak turns out to be a H1 2020 issue only, how much to you expect to cut FY 2020 earnings forecasts by?

However underneath the averages, dispersion is rising both among and within sectors. While expected earnings cuts are little changed from last month overall, variation is starting to emerge between sectors and regions as the extent of the downturn becomes clearer. Consumer discretionary and industrials analysts are more optimistic than last month, while financials analysts are less so.  

The proportion of analysts expecting the pandemic will have a negative impact on earnings has fallen to 85 per cent from a peak of 91 per cent last month, indicating that negative sentiment is at least stabilising and has perhaps already peaked. The rising optimism among consumer discretionary analysts is particularly interesting because the sector has been hit hard by lockdowns enacted to curb the virus’ spread.

Fiona O’Neill adds: “While the economic backdrop remains extremely challenging, more analysts are reporting leading indicators in their sectors are positive this month compared to last month, a sign that while conditions might be harsh, at least some optimism is slowly building. It might be too early to call this the turn, but analysts are reporting that companies are beginning to set their sights on a strategy for recovery. China is still ahead in this respect, but other regions are starting to show signs of life too. 

“The road ahead will not be smooth but we are keeping a close eye on emerging green shoots, looking for idiosyncratic opportunities in sectors and regions recovering at different speeds. Good active management based on both solid fundamental and sustainable research will be critical in a post pandemic world.”

The Fidelity Pulse Survey was conducted between 4-11 May and featured 205 responses from 146 analysts around the globe (analysts who cover more than one sector or region take the survey more than once).