(Aug 3): Australia’s resilient earnings outlook may hit a snag in the August results season as the country’s biggest companies reveal how they’re navigating a fragile economy.
While analysts remain largely optimistic on the nation’s corporate profits, earnings growth projections for the S&P/ASX 200 Index have trailed developed peers in recent months. Concerns over interest-rate hikes and a property downturn have tempered brokers’ expectations, partially offsetting support from elevated commodity prices in the mining-heavy market.
“Dispersion between estimates has widened, setting up another volatile season ahead,” Morgan Stanley strategists including Chris Nicol wrote in a note. “We see building risks to earnings and outlooks for domestic-facing equities” like banks, housing-linked firms and consumer shares, they added.
The setup for Australian shares heading into the reporting season has improved compared to a year ago, with valuations coming off multi-year highs. The nation’s renewed defensive appeal amid artificial intelligence-fuelled volatility could also add a boost if profits live up to expectations.
Still, rate hikes from the Reserve Bank and a housing slump have made the nation’s consumer-related stocks more vulnerable. The RBA raised rates at its first three meetings of the year, while home prices declined in June and July by the most since December 2022.
Consumer-facing stocks are “in the firing line” this results season as inflationary pressures weigh on retailing shares like JB Hi-Fi Ltd and Harvey Norman Holdings Ltd, said Tony Sycamore, a market analyst at IG Australia.
Investors will also look to commentary from Commonwealth Bank of Australia, the only member of the so-called Big Four banks to report this month, for clues on the property market outlook and broader views on the economy.
Meanwhile, materials firms are tipped to drive earnings growth on strong prices in metals like copper, according to BetaShares strategist Cameron Gleeson. Rio Tinto Group last week unveiled its highest interim dividend in four years as first-half profit surged, setting up the sector for positive results.
With valuations on Australia’s benchmark trading closer to long-term averages, companies that are able to meet expectations may perform well.
While some parts of the market appear overpriced, “about half the stocks we cover are undervalued at the moment”, said Lochlan Halloway, a Morningstar Inc strategist, adding that health and tech shares look attractive.
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