There is a theme in the market suggesting that the earning downgrade cycle has ended in Australia. That is a longer discussion than this format is designed for, but the point I wanted to make is that if you have that view you need to recognise that it is a “faith” based view that earnings will pick up – evidence is still saying the opposite and consensus earnings forecasts are still in downgrade mode.
Net number of upgrades / downgrades to 12m Forward EPS for stocks in the ASX 200
Source: Wilson HTM
Additional Thoughts:
What I am showing is the net number of upgrades vs downgrades for stocks in the ASX 200. I am measuring the change over 3 months in the 12 month forward EPS (which is a blend of the next 2 years forecasts – right now for a June year end company it is 9.5/12 x 2014 EPS + 2.5/12 x 2015 EPS).
Because I am showing 12m forward data you should expect a level of “natural upgrades” as each month there is more of later years included in the number – i.e. its a moving target. This is different to when you pick a static year, say tracking 2013 forecasts over time, then you will see “natural downgrades” as analyst forecasts are on average optimistic.
Looking at the changes over 1 month (click here for chart) or 12 months (click here for chart) makes little difference to the conclusion
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific's leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
