Monthly Agenda June 2020 – Australian Equities
Forward earnings revisions for the ASX 200 have stabilised since early May, as analysts look towards the prospect of a recovery as the economy reopens. Since the market's peak in February, earnings estimates have been cut by 22%. Dividend forecasts, however, have been cut by a greater degree than earnings and are 28% lower as companies look to preserve capital and protect their balance sheets through this uncertain environment.
Chart 6: ASX 200: Forward earnings and dividends revisionsEnlarge Source: Bloomberg
With the Australian equity market recovering a substantial proportion of losses in the last three months, the forward dividend yield has experienced a large contraction. Currently, Australian equities offer a yield of just 3.35%, well below the average of the last decade, which detracts from the case for investing domestically.
Chart 7: ASX 200: Forward dividend yieldEnlarge Source: Bloomberg
Since the market's peak in late February, an index of the Australian market's mining companies has materially outperformed the ASX 200, a rare occurrence through a downturn. Mining shares are only slightly lower over this time, compared to the market's 16% decline, with commodity prices holding up relatively well on the combination of robust demand and disrupted supply.
Chart 8: Mining index vs ASX 200 since market peakEnlarge Source: IRESS