Crispin Murray: What we learned from ASX earnings season

Earnings season results indicate a positive outlook for the Australian economy. That’s good news for stocks, says Pendal’s head of equities CRISPIN MURRAY

• Earnings season indicates economy is resilient
• US rate cuts bolster outlook
• Find out about Pendal Focus Australian Share fund
• Register to watch Crispin’s Beyond the Numbers webinar

A DIMINISHING threat of recession in Australia and US rate cuts should support Australian stocks over the next 12 months, says Pendal’s head of equities, Crispin Murray.

Australian equities have performed strongly since March, driven by ratings increases and growing confidence in the economic outlook.

Strong spending from older Australians and a growing population should see Australia avoid recession, even as younger generations come under increasing cost of living pressures, says Murray.

“We think the economy is OK. Doesn’t mean it’s strong — there’s still going to be plenty of challenges — but we don’t believe we will see recession.

“That’s important, because that helps ensure that earnings in the equity market hold up and are supported,” he says.

Murray was speaking at the bi-annual Beyond The Numbers webinar after the August ASX earnings season.

US outlook positive

The outlook for the US economy is an important influence on markets, with concerns growing about the effect of cumulative interest rate rises, ongoing high fiscal deficits, and the uncertainty of the impending elections.

“But I think it is important to keep in mind that the US economy has held up better than pretty much everyone was expecting,” says Murray.

“We have a US Fed that feels they have done the job on inflation, and they have a clear easing bias.”

Murray says financial conditions in the US are easing — as measured by an index of credit spreads, mortgage rates, equity market moves, and currency — indicating the US has already entered a moderate easing cycle.

“The key message here is that even if the US economy turns out to be somewhat weaker, we will see more rate cuts. That will be supportive for equity markets, knowing there is this safety net in terms of much more aggressive easing, if required.”

China structural issues

China, another big influence on Australia’s fortunes, looks more problematic, says Murray.

“The issues in China are structural” as the economy deals with the unwinding of a multi-year property bubble, he says.

“The government has decided that they need to address that, and they continue to avoid stimulating the economy.

“But the trade-off is to what extent those structural issues begin to gather steam and China goes into even lower growth trajectory — or will government policy continue to be able to ensure that we get moderate growth.”

Murray says China has traditionally relied more on investment than consumption and the longer-term hope is that domestic demand becomes a more important driver of growth.

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“We believe that this sort of sluggish growth will continue, but we do also believe that the government [wants] to underpin growth — that they will continue to come through with a series of policy measures that will help prop up growth.

“So, while we remain wary and cautious on China, we do not believe that it’s going to spiral further down.”

That would indicate upside for markets, where investors are pricing in further negative outcomes in China.

Positive market outlook

What does this mean for potential market outcomes?

Murray says the profit season reports showed earnings revisions remain resilient, particularly in industrials, offsetting declines in resource sectors.

Unlike in previous periods of economic weakness, such as the Global Financial Crisis and the pandemic, the monthly rate of earnings revisions for the next twelve months indicates no sign of material economic deterioration.

As a result, Murray says he anticipates positive returns for the ASX over the next 12 months.

About Crispin Murray and the Pendal Focus Australian Share Fund

Crispin Murray is Pendal’s Head of Equities. He has more than 27 years of investment experience and leads one of the largest equities teams in Australia. Crispin’s Pendal Focus Australian Share Fund has beaten the benchmark in 12 years of its 16-year history (after fees), across a range of market conditions.

Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management. 

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