Australian fund managers are bracing for an exceptionally volatile earnings season on the ASX, driven by algorithmic trading and the rise of high-speed “pod shops.” Even minor earnings surprises could trigger significant share price movements, a trend evident in the February reporting season where stocks moved an average of six per cent on results day, marking the largest swing in a decade, according to Morningstar. This heightened volatility is expected to intensify this month, exacerbated by recent Reserve Bank of Australia interest rate hikes, now at 4.35 per cent after three increases this year, and elevated energy costs.
Jun Bei Liu, co-founder of hedge fund Ten Cap, anticipates continued pressure on corporate earnings, citing higher inflation and costs in an environment where consumers are also feeling the pinch. Consequently, fund managers are largely shunning consumer-facing sectors and housing. Liu, for example, has divested from retail conglomerate Wesfarmers. Similarly, Hugh Dive of Atlas Funds Management is cautious on major lenders, holding an underweight position in Commonwealth Bank and zero exposure to NAB, while Sean Sequeira of Australian Eagle Asset Management took profits in supermarket operator Woolworths.
Conversely, technology, defence, and energy stocks are seeing increased interest. Liu has invested in healthcare providers such as ResMed and Ramsay Health Care, alongside specialised artificial intelligence infrastructure suppliers Southern Cross Electrical Engineering and GenusPlus. Sequeira recently acquired software registry Computershare and hearing firm Cochlear. Jackson Aldridge of Regal Funds Management maintains confidence in AI and electrification as strong long-term themes, underpinning his conviction in local suppliers like SKS Technologies and Megaport, as well as defence technology through Electro Optic Systems and Elsight. Hugh Dive has also boosted exposure to the energy sector, including Woodside shares, viewing market overreactions as potential buying opportunities.
