SYDNEY: Australian earnings beats are outpacing misses for the first time in four years, defying a challenging economic backdrop and bolstering chances for a stalled stock rally to resume.
Almost half of the companies on the S&P/ASX 200 Index reported better-than-expected profits, with earnings beats outnumbering misses by 1.5 times.
The stronger results helped propel the nation’s equity benchmark index to a record high in early August, before paring gains to end the month up 1.1%.
Whether the earnings beat can revive the stock rally may now hinge on company guidance and the outlook for profit growth, as higher interest rates and a housing slump continue to weigh on parts of the economy.
Investors will be looking for signs that the stronger results can carry into the next financial year.
“We’re positive on the market and it’s driven by outlook,” said Hasan Tevfik, an investment strategist at MST Financial.
Although a full recovery in profit growth has yet to occur, “we still expect earnings upside rather than downside”.
Several beaten-down stocks emerged as standouts after delivering better-than-expected results.
Residential developers and some discretionary retailers, including Super Retail Group Ltd, posted earnings growth even as consumer conditions softened. Investors also rewarded signs of progress at companies attempting turnarounds, including CSL Ltd, Treasury Wine Estates Ltd and ASX Ltd. Still, the outlook may be mixed with stocks remaining in a downtrend in the near term as resurgent inflation and expectations for further rate increases weigh on parts of the market.
Banks, consumer discretionary and property stocks came under pressure from softer housing conditions, while miners, energy producers and healthcare companies with greater overseas exposure fared better, said Julia Lee, investment director at Shaw and Partners Asset Management in Sydney.
Mining giants BHP Group Ltd and Rio Tinto Ltd benefitted from surging copper prices, with demand tied to the artificial intelligence buildout helping boost earnings.
Gas producers Woodside Energy Group Ltd and Santos Ltd also posted stronger earnings as the Middle East conflict lifted energy prices and supported liquefied natural gas revenue.
With expectations now reset, investors are likely to put greater weight on whether companies can sustain earnings growth into the next financial year.
“This was a resilient season, but a tough one for anyone who came up short on guidance,” said Josh Gilbert, lead analyst for Asia Pacific at online trading platform Etoro.
“The winners were the ones that could show the momentum carries into next year, not just that it was there last year.” — Bloomberg
