The ASX 200 has broken above 5600 this week to post GFC highs as a combination of a recovery in mining stocks and generally more upbeat economic outlook emerges now that consumer confidence has recovered all of the Budget induced loses.
It’s a situation that may not last however as the local market heads toward earnings season according to Deutsche Bank Australia Equity Strategist Tim Baker.
In a note to clients looking at the potential impact of the pending earnings season reporting on the ASX Baker, along with equity analyst Joseph Kim, says that the large number of downgrades “suggests there is limited EPS growth ahead” which means that the local market doesn’t stack up too well on a global basis because, “Australia’s PE ratio is around average vs offshore markets, but EPS growth is forecast to be a lot lower”.
What would get Baker and Kim excited about earnings upgrades for Australian listed stocks?
” A 10%+ fall in AUD, a reasonable acceleration in Chinese growth, or a wave of accretive acquisitions”, Baker and Kim wrote.
That would really be a recipe for an strong move higher in local markets but for now the ASX 200 is perched above 5600 finishing trade today up 5 points or 0.1% at 5628 but off the high above 5640.