The Australian sharemarket is heading into the February reporting season with a revitalised sense of optimism, driven by climbing earnings expectations, according to Morgan Stanley. After a prolonged period of stagnation, the market has reached a turning point, with profit forecasts for the coming years now trending upwards, according to Chris Nicol, Australia’s equity strategist at Morgan Stanley.
This boost is predominantly fuelled by the mining and materials sector. Increased commodity prices combined with a more positive economic outlook for China have collectively helped to elevate overall market expectations. This positive momentum occurs even as the technology and supermarket sectors grapple with downgrades, Nicol noted.
Despite the improved profit outlook, investors are still paying a premium for shares. The market is currently trading at 18.2 times its expected earnings. While this represents a slight decrease from the recent record high of 19.8, it remains significantly above the long-term historical average.
