About half [48.2%] of Fidelity’s research analysts believe the companies they cover will derive future growth from outside their home country/ region. Of these, China was overwhelmingly selected as the major source of that growth. ‘Other Asia’ was the next most popular source of growth [11%], followed by Latin America [8%] and then the core Eurozone [5%]. Perhaps surprisingly, India only registered with 4% of companies as the one major source of future growth.

Matthew Sutherland, Fidelity Worldwide Investment’s Head of Research – Asia Pacific, said: “Asia is still thought to be a major source of growth because even a hard landing in China is better than the best case scenario in the west, China’s economy is migrating from one driven by capital formation to one driven by consumption. This change will take time, but explains why companies are now looking at Asia, and China in particular, as a new consumer base rather than a place to shift operations to cut costs. The risk, however, is that if the Asian consumer disappoints, there isn’t really a plan B.”

From a global perspective, Asia is a more important region to more companies than either Europe or America. About 38% of companies are ‘very reliant’ or ‘entirely reliant’ on the health of the Asian economies, whereas 29% are very reliant or entirely reliant on developed Europe.

More than 110 of Fidelity’s equity and fixed income research analysts in Europe and Asia were surveyed. As each research analyst speaks with the senior management of 30 listed companies on average every quarter  – a key part of Fidelity’s ‘bottom-up’ fundamental investment process –  the survey reflects the thoughts of thousands of CEOs and other top management at listed companies in Europe and Asia.

China becoming more expensive
Seeing ‘Made in China’ on many manufactured products is likely to be on the wane over the next few years – double the amount of companies will be looking to ‘offshore’ operations to SE Asia [26%] than will be looking to offshore operations to China [13%].

Mr Sutherland said: “Wages in factories and, to a lesser extent, rural enterprises have risen significantly in the recent years – perhaps as much as 100% from 2003 to 2008 – as factory labour has become scarcer and the forces of urbanisation have whittled down rural labour stocks.

“It is apparent that China is maturing rapidly as an economy and that as wage costs there continue to rise – labour costs are now only 14% more expensive in Mexico compared with a 240% difference a decade ago, for example – companies are starting to look elsewhere.

“Companies will continue to offshore to reduce costs but the destinations of that new investment are changing – more so for European companies than Asian, perhaps reflecting their higher cost base.

“For Asian companies, South-East Asia will be by far the biggest beneficiary of this followed by China at 13%. For European companies, though, India beats China and SE Asia as the top destination for offshoring. This reflects the fact that Asian companies are offshoring manufacturing, while European companies are offshoring services,” Mr Sutherland said.

About the survey
114 analysts (90% of Fidelity’s analysts across Europe and Asia) responded to the survey in the period 3rd to 12th October 2011. The regional split of analysts was 58 from Europe and 56 from Asia (inc Japan).

This document is issued by FIL Investment Management (Australia) Limited ABN 34 006 773 575, AFSL No. 237865 (“Fidelity Australia”).  Fidelity Australia is a member of the FIL Limited group of companies commonly known as Fidelity Worldwide Investment. Prior to making an investment decision, retail investors should seek advice from their financial advisers. Investors should also obtain and consider the Product Disclosure Statements (“PDS”) for any Fidelity fund mentioned in this document. The PDS is available at www.fidelity.com.au. This document may include general commentary on market activity, sector trends or other broad-based economic or political conditions that should not be taken as investment advice. Information stated herein about specific securities is subject to change. Any reference to specific securities should not be taken as a recommendation to buy, sell or hold these securities. While the information contained in this document has been prepared with reasonable care, no responsibility or liability is accepted for any errors or omissions or misstatements however caused. The document may not be reproduced or transmitted without prior written permission of Fidelity Australia. The issuer of Fidelity’s managed investment schemes is Perpetual Trust Services Limited (“Perpetual”) ABN 48 000 142 049. Perpetual is not the publisher of this document and takes no responsibility for its content. Reference to ($) are in Australian dollars unless stated otherwise. 2011 FIL Investment Management (Australia) Limited.   Fidelity, Fidelity Worldwide Investment, the Fidelity Worldwide Investment logo and F symbol are trademarks of FIL Limited.

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