Stellar Profit Season Brightens Outlook for Australia Stock Bulls
The verdict is in: Australia's earnings season was one of the best of the last decade, setting the stage for possible world-beating gains for the country's stocks.
Commonwealth Bank of Australia, the country's biggest lender, says a greater proportion of companies listed on the S&P/ASX 200 Index made a profit than at any time since at least 2010. This reinforces a view from Northern Trust Corp. that returns from Australian equities over the next five years will be higher than from any other market in the world.
``The earnings season has been good. Very good,'' said Craig James, a senior economist at CBA's securities unit. ``Share prices have scope to track profits higher.''
Northern Trust, the $942 billion asset manager based in Chicago, sees returns in the years ahead driven by an improvement in commodities and higher interest rates driving profit at financial firms.
A focus on companies returning money to shareholders rather than spending cash on investment projects is rewarding investors as a recovery in earnings broadened during the latest reporting season, including retailers and TV channel owners as well as commodity producers.
``Australia's got the benefit of the dividend yield,'' said Jim McDonald, Chicago-based chief investment strategist at Northern Trust. ``That's a huge help.''
Payouts to shareholders are rising faster than many anticipated. Some 69 percent of the biggest firms Down Under lifted dividends. BHP Billiton Ltd. and Rio Tinto Group both declared better-than-expected dividends as higher commodity prices buoyed earnings.
The S&P/ASX 200 Index is already among the biggest markets with the highest aggregate dividend yield. It will pay a 4.5 percent yield over the next 12 months, vying with the FTSE 100 Index for the top spot, data compiled by Bloomberg show.
The index will climb 4.5 percent to 5,983 in the next year, according to more than 4,000 analyst forecasts compiled by Bloomberg. Northern Trust is even more bullish for the longer term, expecting 8 percent annualized returns over the next five years. That's higher than the 7.3 percent it predicts for emerging-market shares and its 4.8 percent annual target for U.S. equities.
The country's main stock index is up 1 percent in 2017, compared with a 5.7 percent gain for the S&P 500 in the U.S. In the past 12 months, materials shares have led gains, as the group surged more than 40 percent on the back of rebounding commodities prices.
``We expect further evidence that the earnings expansion will continue to broaden through the year,'' said Hasan Tevfik, Sydney-based strategist at Credit Suisse Group AG. ``This keeps us positive on the market.''