I’ve been amazed at how slow markets have been to price falling earnings as the iron ore price has crashed. The following from the SMH blog helps explain why:
“Consensus earnings have been getting trimmed but Citi analysts still see risk of disappointment for quite a few stocks, in areas that are recognised as tough like retailing, media, engineering, and metals and mining, and for some others operating offshore.”
That risk is centred on outlook statement and predicted 2015 financial year earnings.
Citi reckons forecast earnings for the miners could take a hit, although banks may be come upgrades. Overall, the bank is calling forecast market earnings to drop “perhaps a few per cent”.
“For industrial companies, analysts have had fairly strong growth forecast in most sectors in financial year 2015, expecting the long-awaited earnings rebound, after the subdued conditions since the global financial crisis,” the strategists said.
“As the focus shifts to FY15 during reporting season, companies and analysts are likely to be bringing earnings forecasts down, given the current conditions. For the large mining companies, recent iron ore prices are likely to get factored into forecasts more post the production quarterlies, when analysts do their commodity forecast updates.”
The few good analysts out there already know the result and have cut earnings guidance. That the majority want to wait and see only goes to prove the the power of bureaucracy, even in markets.
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.
