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Economics & Markets

A mixed reporting season – share market hits new high before coronavirus correction

By Dr Shane Oliver
Head of Investment Strategy and Economics and Chief Economist, AMP Capital Sydney, Australia

The company earnings reporting season was best described as mixed, but probably better than we feared. The Australian share market hit a new record high in the middle of the reporting season before it got whacked by concerns over coronavirus.

The ASX 200 reached a record close of 7,162 points on February 20 before joining Wall Street in a sell off that was fanned by fears over the effect of COVID-19 on the world economy.

One of the most concerning aspects was the number of companies warning of negative impacts due to coronavirus that are still to come down the track. All of this has raised the prospect of a deeper, more drawn out hit to the global economy and the uncertainty has affected investors.

Lowest percentage of companies reporting profit increases in more than a decade

More companies reported increased profits than those that reported falls, while dividends are pretty strong and company guidance was generally okay.

One of the notable downsides is that we saw the lowest percentage of companies in more than ten years reporting profits up compared to a year ago. About 53 per cent of companies reported higher profits, but that percentage is actually quite low - and the lowest since 2009.

Dividends are strong but profit outlook falls

Company profit expectations, according to the market consensus, have fallen during the reporting season. When reporting began in early February, the consensus was for 3.0 per cent profit growth for the financial year. By the end of the season, that had slipped back to about 2.3 per cent.

The very good news for investors is that dividends are still quite strong. For those investors who are after dividends, there are still a lot of companies out there paying decent dividends – ultimately, a dividend yield far more attractive than you’re going to get from bank deposits.

That said, 50 per cent of companies raised dividends, which was below the norm of 62 per cent.

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Shane Oliver, Head of Investment Strategy & Economics and Chief Economist
  • Covid-19
  • Economics & Markets
  • Opinion
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Important notes

While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455)  (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

 

This article is not intended for distribution or use in any jurisdiction where it would be contrary to applicable laws, regulations or directives and does not constitute a recommendation, offer, solicitation or invitation to invest.

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