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(Bloomberg) — Australian stock traders are bracing for further declines during the August reporting season on expectations for weak earnings.
The benchmark S&P/ASX 200 Index is shaping up for deeper losses after wiping out all of July’s gains amid a global equity rout, as projections for tepid results loom. Analysts have trimmed forward earnings expectations for Australia by almost 4% over the past year, while estimates for Asian peers have risen, according to data compiled by Bloomberg.
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“With banks and miners on the back foot, earnings leadership through this profits season likely will not be coming from the usual suspects,” UBS Group AG analysts led by Richard Schellbach wrote in a note.
Commonwealth Bank of Australia will set the scene for banking shares when it reports full-year results next week. The benchmark’s most heavily-weighted stock is seeing crowded short positions heading into earnings after soaring to fresh highs, according to UBS.
CBA is the only one of Australia’s so-called big four banks to report earnings this month, though other lenders will issue trading updates.
Read: Hedge Fund Regal Takes Short Position in Biggest Australian Bank
Rio Tinto Group kicked off mining earnings last month, posting a slight increase in first-half profit as the world’s biggest iron ore miner proved resilient to China’s economic slowdown. Upcoming results from BHP Group and Fortescue Ltd. are poised to be softer, with the latter’s forward earnings estimated to tumble by almost 30%, according to data compiled by Bloomberg.
A gauge of domestic materials shares is down 16% in 2024, heading for its worst yearly performance since 2015 and significantly lagging banks.
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The underperformance versus lenders “is at extremes, which should see more support for miners in a relative sense,” said Anna Milne, senior investment analyst at Wilson Asset Management. “Earnings revisions have been revised lower since February and expectations are low.”
Hawkish RBA
All eyes are on the Reserve Bank’s meeting Tuesday for any steer on local stocks’ trajectory. While cooling inflation prompted traders to abandon wagers that the central bank would further tighten policy, Australia is still poised to stay near the back of the global easing cycle with the first rate cut seen in December.
Read: RBA Set for Hawkish Hold, Trailing Global Peers in Easing Cycle
Still, the macroeconomic environment is “full of counterfactuals,” Milne said. With “a resilient consumer in a slowing economy, weighing up inflationary versus unemployment risks and an impatient easing cycle, the focus will be on trading updates and FY25 outlook statements more than ever.”
Dwindling Dividends
Among companies on Australia’s benchmark, dividend payouts are expected to fall 2.1% this year compared with 2023, according to data compiled by Bloomberg. Even though most sectors will increase payments, dividend cuts will be led by energy and consumer discretionary shares.
—With assistance from Swati Pandey and Zhuo Zhang.
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