Rudi's View | 4:46 PM
Resources and Healthcare pushed the ASX200 to another positive outcome in August. Analysts have nominated their favourites and Conviction Buys.
By Rudi Filapek-Vandyck, Editor
The August results season was dominated by sharp dispersion, with Resources and Healthcare leading the index, banks losing momentum, and small and midcap stocks outperforming -- but internal divergence in each of these sectors and categories remained unusually high.
While financial performances for the six months to June 30 proved more resilient than feared, disappointments came thick and fast through slower trading updates into early FY27 and cautious outlook statements.
Not making matters any easier, economic data and inflation equally proved more stubborn than maybe hoped for, and this firmly keeps more RBA tightening on Australia's mind.
The strategy team at Morgan Stanley, currently among the more downbeat in the country, summarises the set up post August as follows:
Earnings pressure persists and valuations remain elevated.
Dividends, M&A & Share Buybacks
Market watchers at Goldman Sachs note how capital discipline was equally one of the eye-catching factors in August. On their calculations, spending on M&A was only around half its normal level.
On the other hand, $7bn in share buybacks were announced with ResMed ((RMD)), CSL ((CSL)), Telstra ((TLS)), Perseus Mining ((PRU)) and Challenger ((CGF)) responsible for the lion share of buybacks.
The key exception was the Resources sector where a number of miners pivoted towards investing in growth.
The irony of seeing Materials and Healthcare take the lead in August is that it combines the best and worst performing market segments from the previous twelve months (yes, Technology was bad too).
The underlying dynamics could hardly be more contrasting. Miners and energy producers have been enjoying sharply higher pricing for their volumes. Some market watchers believe the Australian mining sector experienced its strongest earnings season in five years in August.
Sector dividends beat expectations by around 13%, although the surprise largely reflected the reinstatement of dividends rather than higher payout ratios.
Healthcare companies at large have gone through a sharp de-rating post-covid and some of the latest results might be indicating the end of that downtrend is nigh.
Combine the return of confidence with beaten-down share prices, low expectations, bearish sentiment and short positioning and the outcome has seen CSL shares, to name but one, attract a lot of positive attention.
Results and quarterly market updates from the banks generally led to weaker share prices, but downgrades to forecasts have thus far remained relatively small. That debate in light of ongoing weakness in property markets will continue for much longer.
Let's return our attention to the sector that enjoyed its moment under the sun for all the right reasons.
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