With falling commodity prices putting extreme pressure on the resources sector, UBS is expecting a "decidedly grim" reporting season.
The UBS 2016 Reporting Season Preview, released yesterday, said that ex-resources earnings trends are "far from buoyant" but nevertheless continue to grow at a subdued pace (approximately five per cent).
The Australian equity market is confronting a number of earnings headwinds beyond weak commodity prices, particularly at the "very large-cap end of the market", said UBS.
"Outside the 'top 20', the earnings picture is somewhat better, albeit the backdrop is one of moderate overall growth with a fairly [diverse] range of growth outcomes by stock," said the report.
The tailwind from a lower Australian dollar is still helping 2015-16 earnings per share growth for the US dollar earners segment of the market, said UBS.
"Domestically, consumer discretionary should be a relative bright spot with housing still buoying consumer spending and the NSW economy particularly strong," the report stated.
"Resource-related industrials should report weak results although the market will be looking for any signs of a bottom in profitability given the extended poor performance (and level of short interest) in the sector."
Within the financial services sector, UBS tipped IOOF Limited as a "potential large-cap negative surprise".
For IOOF, "weak flows present downside risk" and there is "potential for cost disappointment", UBS said.
SUBSCRIBE TO THE IFA DAILY BULLETIN
- 20 Jul 2018CPA shuts financial advice divisionBy Reporter
- 20 Jul 2018Don't neglect AI, advisers warnedBy Tim Stewart
- 19 Jul 2018AMP unveils new in-house training programBy Reporter
- 19 Jul 2018Self-licensed adviser cops 4-year ASIC banBy Reporter
- 19 Jul 2018Hub24 to launch new core offeringBy Reporter
- 19 Jul 2018SMSF sector warns about advice ‘exodus’By Miranda Brownlee
- view all