Weak market returns during reporting season

16 September 2016
| By Oksana Patron |
image
image
expand image

The weak market returned in August, which marked the beginning of the reporting season, however the fundamentals on the whole have not changed, suggesting this may be a temporary reversal, according to State Street Global Advisors (SSGA).

The company's head of active quantitative equity, APAC, Olivia Engel, stressed that a lacklustre company reporting season hid a surprising risk-on month.

Although at a company level there were slightly more positive surprises than negative in terms of reported earnings, the reported sales which were more negatively skewed suggested that earnings beat were not coming from underlying growth but more likely through the companies attempting to reduce costs.

SSGA also said it expected hard times for those searching for genuine sales growth as the companies' cost-cutting policies may help the earnings but they would not support "top-line economic growth" and more corporate investments would be necessary.

As far as the sectors were concerned, August saw the risk-on theme evident in sector returns, with IT, energy, and selected metals and mining shares leading the way while gold stocks, utilities and telecoms along with selected media companies were perceived as relative safe-havens.

According to SSGA, returns in August also showed a reversal of fortune from previous months with winners becoming losers and losers winners, with sectors that had contributed significantly to the benchmark return in 2016, such as gold, real estate, utilities and industrials, giving back some of the gains in August.

The State Street Australian Equity Fund also followed this trend in August, when it underperformed the market by more than 3.3 per cent net and put August among its worst five months in terms of both relative and absolute performance since the fund's launch.

"Often we see increased volatility during reporting season as companies rebase expectations and share prices react to reflect the innovations in the fundamentals," Engel said.

"Despite this volatility, a beat, or miss, or sharp price reaction in August does not necessarily signify a change in the long-term fundamentals for a company. Nor should short-term performance alone change our investment approach."

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

GG

So shareholders lose a dividend plus have seen the erosion of value. Qantas decides to clawback remuneration from Alan ...

2 months 1 week ago
Denise Baker

This is why I left my last position. There was no interest in giving the client quality time, it was all about bumping ...

2 months 2 weeks ago
gonski

So the Hayne Royal Commission has left us with this. What a sad day for the financial planning industry. Clearly most ...

2 months 2 weeks ago

A Sydney-based financial adviser has been banned from providing financial services in the interest of consumer protection after failing to act on conduct concerns. ...

3 weeks 6 days ago

Insignia Financial has made four appointments, including three who have joined from TAL, to lead strategy and innovation in its retirement solutions for the MLC brand....

1 day 4 hours ago

ASIC has cancelled the AFSL of a $250 million Sydney fund manager, one of two AFSL cancellations announced by the corporate regulator....

3 weeks 4 days ago