Australian sharemarket investors appear complacent, overlooking a sharp slowdown in consumption and housing, according to equity strategists. Despite the August reporting season revealing significant economic challenges, stocks trade at levels detached from reality. Inflationary pressures, fuelled by rising oil prices, emerged across nearly every sector. This was reinforced by a hotter-than-expected inflation print, shifting interest rate outlooks and anticipating a fourth Reserve Bank of Australia increase this year.
Evidence of a weakening economy is clear, notes Morgan Stanley equity strategist Chris Nicol, citing softer credit growth and a compromised consumption “flywheel.” Analysts cut S&P/ASX 200 company earnings forecasts to 9.3 per cent growth for the current financial year, down from 13 per cent two months prior. Despite frequent downgrades, Nicol warns the deteriorating profit outlook is not reflected in the market’s elevated valuations. The ASX 200, near all-time highs, trades on a lofty forward price-to-earnings multiple of nearly 18 times, above its long-term average of 15 times. Consumer spending slowed significantly, with Domino’s Pizza Enterprises, a global pizza delivery network, seeing same-store sales fall 5.8 per cent. Electronics and whitegoods giant JB Hi-Fi reported a 1.4 per cent drop in sales, causing a 12 per cent share price tumble.
The reporting season also highlighted varied sector performances. Bank stocks experienced their worst monthly return since June 2022, tumbling 9.3 per cent due to concerns about slowing credit growth. Consumer discretionary and real estate sectors also lagged. In contrast, the healthcare sector surged nearly 20 per cent, its strongest month on record, driven by robust results from companies like CSL. Shareholder payouts remained resilient despite lower earnings forecasts. MST senior analyst Hasan Tevfik noted strong balance sheets, particularly among commodity producers. This led to a record 21 Australian companies announcing new or expanded buybacks worth $4.4 billion, led by CSL’s $1.1 billion and Telstra’s $1 billion schemes.
