Companies reliant on spending will fall back to earth even if interest rates remain high. This may present stock pickers with some good buying opportunities this year.
With reporting season over for another few months, the questions to be asked are what did we learn about the state of Australian companies? And,Company results broadly came in line with expectations, but we saw significant volatility in the share price from one company to the next, which typically means that the market is struggling to value earnings.
Despite this, there was one common theme – increasing costs. Higher staff wages, higher operating costs, higher interest costs and higher capital costs driven by the surge in inflation. And while inflation appears to be moderating, it is still working its way through companies’ operating systems.The company’s ability to manage these costs was what separated the winners from the losers. Pilbara Minerals, for example, had higher than expected capex and was sold off through August.
But it is fair to say that Australian consumers continues to defy gravity. In consumer discretionary, while we didn’t see stellar results, they weren’t as bad as expected. And with expectations lowered by many companies back in August, some stocks have even rallied on the back of the “better-than-expected” results.
So, how is Australia poised after all things are said and done? Our base case remains that while the economy will avoid a recession over the next year, we still expect growth to slow.
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