FNArena’s Weekly Insights – August 30 2021

In this week’s Weekly Insights

It’s The End Of The Trend

By Rudi Filapek-Vandyck, Editor FNArena

Investing revolves around numbers. Investors like to focus on numbers, though sometimes, dare I say it, with too much emphasis. Successful investing goes beyond the temporary, static analysis of data, but we’ll leave this topic for further discussion another time.

As per always, the August corporate reporting season in Australia has generated series of fresh statistics and numbers. Now the end of the month is beckoning, we might as well start off with the numbers that provide us with fresh new trends and updated, deeper insights.

Observation number one is that corporate Australia remains a bifurcated, multi-speed organism and many of the generalised statistics hide the fact that, underlying, the gap between Winners and Laggards remains large. Whether this swings the pendulum in favour of the positives or the not-so-positives -your typical glass-half-full or half-empty proposition- is very much dependent on the angle one starts off from.

The overall positive impetus from corporate results mostly meeting or slightly beating expectations, showing sharp recoveries and a clear bias towards rewarding shareholders, has ostensibly faded as the month matured.

On the FNArena Results Monitor assessment, as the number of corporate reports increased significantly throughout week 4 of the season, the percentage of ‘beats’ gradually moved away from the 39.1% it had risen to over the three weeks prior (128 companies in total).

On Monday, with the total number of companies having accumulated to 293, the percentage of ‘beats’ has fallen below 35%. This still indicates a positive reporting season, still above the pre-2020 average of 33%, though no longer as exceptional as the reports that had been delivered over the 11 months post August last year.

Of course, we must also take into account that analysts’ forecasts had been rising for 11 months uninterrupted and so it was always a bigger challenge to keep beating those forecasts, in particular when growth in China, momentum in the US and lockdowns in Australia have started presenting fresh headwinds and challenges.

Irrespectively, the negative news that is hiding underneath the numbers from August is that earnings momentum in Australia is now probably past its peak. When all modeling and forecasts have been freshly updated over the coming days, it is likely that August will mark the first month of net negative earnings revisions, in aggregate, ending the strongest and longest positive trend the ASX has experienced over multiple decades.

Investors will be on the look-out for further signs that a new trend might be in the making; one that can have negative implications for the next six or twelve months ahead.

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