Australian earnings trends decline

Oksana Patron

1 June 2023

The Australian earnings trends have declined in line with their global counterparts  which are closely linked to global economic trends, State Street Global Advisors (SSGA) head of portfolio management – Australia, Bruce Apted, said in a note.

“The sometimes unfortunate truth for Australia is that by having an open economy with many global linkages, we can do little to avoid being impacted by these global trends,” he said.

He pointed to a similar example from early 2008 when there was a similar disconnect with Australian mining companies continued to see upgrades and the domestic banking sector initially appeared resilient, before surrendering to global influences.

For most of 2022 the Australian equity market proved resilient to the earnings per share (EPS) slowdown in the developed world, maintaining EPS growth of approximately 20%, but the Australian companies exposure to iron ore, copper, oil and gas and our domestic economy were more resilient.

“In 2023, the outlook for financials, energy and materials has deteriorated and the 12-month EPS trend has declined to -1% as at 19 May 2023,” Apted noted.

On top of that, sentiment for the big four banks also declined from 83 to 39 this year while the index concentration that provided resilience last year now also appeared less resilient.

As far as 2023 earnings trends were concerned, Apted expected that financials, which were the largest weight of the index, would experience negative earnings momentum in 2023 and the earnings trend in the energy sector has gone form the most positive in 2022, to the second most negative in 2023.

The impact from the tech sector, which has demonstrated the most negative trend in earnings so far this year, would be less significant due to a sector’s low index weight of only 2.5%.

Materials, on the other hand, has seen small positive earnings momentum year-to-date but has seen a de-acceleration from rates of growth in 2023.

This makes Utilities (+15.9%), Industrials (+10.8%) and Health Care the best sectors with the most positive earnings trends for 2023.