With the company reporting season now 90 per cent complete, a picture is emerging of the domestic economy and the outlook for 2014. Two-thirds of companies have reported higher profits and one-third lower with the average for this reporting season being dragged down by the resources sector reacting to lower commodity prices. While business conditions are definitely harder than management and shareholders would like, Intrinsic Investment Management are forecasting earnings growth in the2013-14 financial year. Portfolio Manager, Sam Ferraro, said the consensus forecast for the ASX200 is that earnings per share will grow by 8 per cent in 2013-14 and 10 per cent in 2014-15.
With investor uncertainty surrounding the federal election, investors face two months that have a poor reputation in terms of stock market returns. Looking at average monthly All Ordinaries Index returns since 1980, September is slightly positive, while October is the worst month of the year. This year the outlook for September and October is clouded by geopolitical risk in the Middle East (notably Syria); uncertainty surrounding a possible tapering move by the US Federal Reserve; and reports that the US Treasury will again reach its debt ceiling in mid October and won’t be able to pay its bills.
Business leaders in Australia believe the election will be the turning point that will boost confidence levels, flowing through to investment decisions. Intrinsic’s Sam Ferraro believes the RBA is most likely to cut interest rates again before the end of 2013, putting further downward pressure on the dollar and supporting US exposed stocks. With the demand for Australian resources easing as China’s economy shifts, economists believe that property will go some way towards plugging the gap in the mining sector.