Despite the negative macro headwinds of tightening monetary policy and geopolitical events, the Australian equity market is one of the few regions in positive territory for 2022. Domestic equities have been supported by a solid half year reporting season and strong commodity prices. The latter factor has been even more significant over the last several weeks following the disruption triggered by the conflict in Ukraine.
Chart 1: Australian equities – in positive territory for 2022
The dividend recovery continued through February’s half year reporting season, with a significant number of companies increasing their dividend from last year. Large dividend increases were driven by the resources sector, which has been the beneficiary of buoyant commodity markets. Key stocks to cut their dividends were largely those companies who had inflated earnings through the COVID lockdowns of the last two years, particularly in the retail sector.
Chart 2: Dividend recovery continues through reporting season (dividend change – no. of companies)
While all key sectors of the Australian equities market have participated in the earnings recovery from the height of the COVID crisis, resources have continued to provide material support through this period. For FY22, earnings from the resources sector are now expected to be more than 60% higher than pre-COVID levels, before moderating in FY23.
Chart 3: ASX 200: Cumulative EPS growth