Monthly Agenda September 2020 - Australian Equities
A potential second wave of capital raisings by Australian companies did not eventuate through August's reporting season. With most large capital raisings occurring over April/May, company balance sheets are now in relatively good shape, with debt paid down and leverage reduced. Capital raisings have continued over the last few months, although generally these have been at the smaller end of the domestic equities market.
Chart 5: Australian Equity Market: Capital RaisingsEnlarge Source: Bloomberg
With forward earnings downgrades filtering through the market as August's reporting season progressed, the recovery across industrials has stalled somewhat in the last two months. Further clouding the outlook has been the second round of lockdowns in Victoria. However, upgrades across the resources sector has supported the broader market in this time, with strengthening iron ore, gold and copper prices all leading to positive upgrades for mining companies.
Chart 6: ASX 200: Earnings RevisionsEnlarge Source: Bloomberg
The ASX 200 is lagging many other overseas equity markets in terms of performance since the beginning of the COVID-19 crisis. The structure of our domestic market explains some of this difference. IT is the only sector that is currently higher than at the beginning of the correction, although the sector is quite small in the Australian market. Meanwhile, the large financials sector has underperformed, with an expected rise in bad debts across the banks contributing to this outcome.
Chart 7: ASX 200: Sector PerformanceEnlarge Source: Bloomberg