Writing for Firstlinks, Tribeca’s Jun Bei Liu explains her outlook for the Australian market:

This reporting season has demonstrated the earnings resilience of corporate Australia. It started strong, with several retailers reporting solid earnings results early. Then, in the final weeks, aggregate ASX 200 EPS downgrades were approximately 0.5%. That compares to a normal level of close to 0.7% of downgrades during a reporting season.

These numbers are a solid outcome for corporate Australia. Throughout the reporting season, the key theme was revenue was strong as the demand from consumers and corporates remained relatively high.

Even the trading updates for the first four to six weeks of the 2023 year from some of the retailers highlighted how resilient the Australian consumer is.

On the downside, the biggest factor for downgrades was costs being much higher than expected. Many companies also pointed to high labour costs as an issue behind lower earnings. Higher commodity costs, which were an issue some months ago, have fallen back but higher labour costs are expected to be ongoing.

But, despite a sluggish backdrop, most of the company guidance pointed to good dividends. And many pointed to higher capital expenditure as well.

This reflects the strength in demand that many companies are currently observing. However, it does pose some concerns about what might happen if demand falls quite quickly, especially when higher interest rates start impacting consumers and their balance sheets.

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