From the SMH blog comes some good stuff from Deutsche Bank:
Earnings have been forecast to grow by an average of 15% as the year begins, but end up growing by 6%. Excluding recessions, the initial 15% forecast drops to 11%. But in the past decade or so the downgrades have been smaller.
The current picture:
- In recent months accelerating downgrades suggest limited EPS growth ahead, although improving global growth in 2H could improve this a little. As it stands, analysts forecast 7% for FY15 – a low number to start the year, and history suggests upgrades are uncommon.
- This leaves Australia not looking particularly attractive on a global basis. Australia’s PE ratio is around average vs offshore markets, but EPS growth is forecast to be a lot lower.
- What would be needed drive upgrades? A 10%+ fall in AUD; a reasonable acceleration in Chinese growth; or a wave of accretive acquisitions.
An idiotically bullish culture reaps what it sows, but the last two years of big misses have been driven largely by one factor: falling iron ore.
