Middle East Conflict Sparks Oil Price Surge, Inflation Pressure May Explode? Corporate Survey Reveals Industries with Resilience

Escalating conflict in the Middle East has led to a sustained surge in oil prices in recent days, once again triggering market concerns over inflation and supply chain disruptions. According to corporate surveys, many companies are currently still benefiting from energy price hedging arrangements and existing inventory, and have not yet fully felt the impact of rising costs.

Fidelity International's Market Pulse Survey, conducted in June this year, surveyed nearly 100 Fidelity equity and fixed income analysts, synthesizing observations and assessments gathered from analysts' interactions with corporate management teams. 55% of the surveyed Fidelity analysts expect that due to the Middle East conflict, the companies they analyze will face further rising inflationary pressures over the next 12 months.

Fidelity analysts point out that some companies are currently still able to buffer cost pressures through existing hedging measures and inventory. However, as these measures gradually expire, the impact of rising energy, transportation, and raw material prices is expected to become increasingly evident. Among them, the consumer, industrial, and utilities sectors face the most significant increases in cost pressure. Nonetheless, analysts generally expect rising input costs to become a common challenge across industries and regions.

Niamh Brodie-Machura, Chief Equity Investment Officer at Fidelity International, stated, "The renewed escalation of conflict in the Middle East adds further challenges to an already uncertain business environment. While many companies have not yet fully felt the cost shock, Fidelity analysts believe that as existing buffer measures gradually fade, inflationary pressures will become more apparent in the coming months. Whether companies can effectively manage costs and maintain competitiveness will become a key differentiator."

Despite increasing challenges in the operating environment, Fidelity analysts expect companies to continue expanding capital expenditures, particularly with the strongest growth expectations in the utilities, energy, and information technology sectors. These industries will continue to play a pivotal role in the development of AI infrastructure, including power generation facilities, power grids, semiconductors, and data centers.

Fidelity analysts indicate that capital expenditures in the utilities, energy, and information technology sectors will continue to increase over the next 12 months. At the same time, analysts expect corporate profitability to remain resilient over the next 12 months. Despite rising cost pressures, the proportion of analysts who believe corporate profitability will improve exceeds those who expect it to deteriorate, reflecting that many companies possess the ability to pass on costs and improve operational efficiency, sufficient to cope with challenges arising from inflation and other uncertainties.

Niamh Brodie-Machura concluded, "The Fidelity International Market Pulse Survey reflects that the current market is being driven by three major themes: persistent inflationary pressure, continued growth in capital expenditure, and resilient corporate profitability. While geopolitical uncertainty brings challenges, many companies are already equipped to manage these risks. For investors, identifying companies that can sustain investment while maintaining profitability will be key to capturing long-term investment opportunities."

Fidelity analysts expect corporate profitability to continue increasing over the next 12 months.

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