Resource gains mask deeper cracks in reporting season

During the latest reporting season, Australia’s resource sector earnings masked a weaker performance across much of the stock market, as indicated by investment manager UniSuper.

Australian shares climbed just over 1 percent in August, surpassing pre-Iran war outbreak market peaks. Overall earnings growth reached around 10 to 12 percent, but mining and energy companies drove most of this with about 30 percent growth. Without these resource companies, earnings growth for the rest of the market was closer to 5 percent, according to UniSuper head of fixed interest David Colosimo.

Healthcare sector performed strongly, with gains of 19 percent in August. CSL and Cochlear saw significant increases of nearly 40 percent and 12 percent respectively. Mining companies also posted broad gains, with Newmont, Sandfire Resources, and BHP rising 31 percent, 21 percent, and 10 percent respectively. Lithium, rare earths, and uranium companies also advanced during the month.

Consumer discretionary companies and banks offset these gains, leaving the broader Australian market with a modest monthly return. Retailers like JB Hi-Fi, Wesfarmers, and Harvey Norman experienced significant declines due to slowing sales growth and rate hikes. Commonwealth Bank and NAB also fell by 10 percent and 9 percent respectively.

Colosimo noted that when a few commodity producers drive most of the earnings increase, it can obscure the broader economy’s health. Investors tracking the ASX 200 might see strong numbers while their own portfolios, weighted towards financial services or consumer stocks, struggle.

Investor reactions to results were pronounced, with average share price movements exceeding 5 percent on earnings release days.

One notable aspect of the Australian reporting season was the lackluster guidance for next year. Analysts have reduced their forecasts for the coming year, contrasting with the US where corporate earnings growth exceeded 30 percent in August. Tech earnings climbed about 50 percent as investments in artificial intelligence continued. Nvidia, Salesforce, and ServiceNow saw strong results, while biotech company Moderna surged after announcing a melanoma vaccine breakthrough.