Businesses are yet to feel the full cost impact of renewed Middle East conflict, according to Fidelity International.
The firm’s latest Analyst Pulse Survey found that 55% of Fidelity’s equity and fixed income analysts expect inflationary pressures within the companies they cover to increase over the next 12 months as a result of the Middle East conflict.
While many businesses have so far been protected by energy hedging programmes and existing inventories, analysts believe higher energy, freight and raw material costs are likely to become more visible as those protections expire.
Niamh Brodie-Machura, CIO, equities at Fidelity International, said: “The renewed conflict is adding to an already uncertain backdrop for businesses. While many companies have yet to feel the full impact on their cost base, our analysts expect inflationary pressures to become more apparent over the coming months as existing buffers begin to unwind.
“The extent to which companies can manage those pressures is likely to become an increasingly important differentiator.”
Despite the more challenging backdrop, analysts expect companies to continue increasing capital expenditure, with expectations strongest in utilities, energy and information technology.
Analysts also expect corporate profitability to remain resilient over the next 12 months, suggesting many companies remain well placed to manage inflationary pressures despite the uncertain operating environment.
Brodie-Machura added: “Taken together, the survey highlights three themes shaping markets today: persistent inflation pressures, rising capital expenditure and resilient corporate profitability. While geopolitical uncertainty is creating new challenges, many businesses appear well placed to navigate them. For investors, identifying those companies that can continue investing while maintaining profitability will remain critical.”
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