Investment Matters

FY-15 reporting was a fairly sobering affair for the market

For the market generally this was a disappointing results' period.

Led by substantial earnings (i.e. profits) declines in the whole resource complex (oil to milk), the FY-15 reported profit numbers were a substantial decline on FY-14. Most tellingly, however, the expectations for FY-16 were cut back by ~3% and currently sit at a very marginal earnings growth expectation of 3%.  

This is weak growth. 

Whilst the majority of the share-market sell-off that occurred during reporting season related to China softness (or increasing US interest rates, you choose…), some of it related to the decline in expected profitability and can be traced back to the ANZ result.  This was the first time a bank has shown that we may be through the best of the bad debt cycle (and thus provisioning will lift, reducing profit).

From that point expectations across the market softened, and we ended with very modest expectations for FY-16.  But, somewhat perversely, also ended with a market that still stands some 7% ahead of its long term average value (at 15.5x expected FY-16 profit, i.e. a P/E of 15.5).