However, for those among us who run a diversified portfolio, it is not easy to protect against such risk. In recent editions of Weekly Insights, I singled out the risk of individual corporate profit disappointment as one of the key risks for the Australian share market.
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See also FNArena's weekly update (available every Monday morning):
If we take guidance from the financial reporting season post-September, on Monday the FNArena Corporate Results Monitor shows of all reporting companies, 54.2% have beaten expectations, with both "meets" and "misses" in balance for the remaining 55.8%.Īdmittedly, the tally stands at 35 companies only, and most of the disappointments recently have come through AGM addresses and quarterly market updates.Īlso, those numbers hide the fact that analysts have actually been very busy making major amendments to their forecasts as the likes of Orica (( ORI)), GrainCorp (( GNC)), Megaport (( MP1)) and 29Metals (( 29M)) surprised to the upside, but with the likes of Xero (( XRO)), Tyro Payments (( TYR)), James Hardie (( JHX)), Ramsay Health Care (( RHC)) and Ansell (( ANN)) triggering downgrades.
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In Australia, the risk is very much concentrated in corporate market updates and financial results.Īs I reported last week, forecast EPS growth for the year ahead for the ASX200 has halved to some 6.5%, but one can make the argument the bulk of the decline in expectations over the past 2.5 months is due to the fall in the price of iron ore, and various other commodities, plus a non-exciting reporting season from the banks. Regardless, those experts say, headwinds are building on the back of ongoing severe energy shortages across Europe, repeated set-backs in adjustments to life with covid, decelerating growth in China, and ongoing inflation challenges in the US (eating into household spending).Īs the end-of-year holidays are just around the corner, many companies will likely still be struggling to get products on the shelves, meaning consumers are faced with limited supply and higher prices.Īnd so, it seems, the calendar year of 2021 will come to an end while holding a basket of numerous contradictory narratives, and with markets showing a penchant for positive surprise. On my observation, most on the cautious side of the market who have been preparing for a much greater fall for equities are now prepared to accept any share market correction might not arrive until next year. The upshot is most experts and commentators have seemingly resigned to the fact this bull market continues to showcase its ability to surprise positively.
Relief from bottlenecks also means corporate margins might not come as much under pressure as feared, so that makes for a double positive.Įnter the strong rally we have been witnessing in US equities since late September (apparently also supported through short-covering by those who had positioned themselves for a bigger fall previously). One of the market narratives that has grown popular recently is that many of those bottlenecks are finding relief, which not only means inflation pressures should start to subside, but bond markets will have to retreat from their uber-aggressive pricing of central bank rate hikes, which can only be good news for share markets. If you thought global supply chain bottlenecks remain on investors' radar because the outlook for inflation depends on it, you'd be half correct.
This story features ORICA LIMITED, and other companies.
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