We started the August company reporting season with a number of takeaways from the United States' corporate profit season. The US reminded us that corporate fundamentals matter. We are at the end of an era of cheap money which provided cover for companies with weak business models. Today, faced with rising interest rates and tighter liquidity conditions, these companies are being found out.
Overall, reporting season illustrated that corporate Australia remains solid, delivering a reasonable 7.3% growth in earnings per share (EPS) over FY18. However, beneath the surface challenges remain in a number of industries.
Key themes we took from the month's Australian equity results were:
- Cost pressures are rising
- Dividends continue to grow as do other forms of shareholder returns
- The Australian consumer remains in a relatively weak position and
- Policy and regulatory uncertainty remains.
While investors continue to chase returns with little regard for risk, we remain focussed on the preservation of capital. True diversification across all asset classes, now more than ever, will have even greater bearing on long term portfolio returns.
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