ASX investors are bracing for a potentially turbulent August earnings season, driven by outdated analyst forecasts and evolving market dynamics. The increasing influence of passive investing and quant funds means even minor deviations from company expectations could trigger significant share price movements. This comes against a backdrop of ongoing geopolitical concerns from the Iran war, potential shifts in the artificial intelligence trade, and the Reserve Bank of Australia’s persistent high borrowing costs.
Morgan Stanley equity strategist Chris Nicol warns the upcoming reporting season could be the most volatile yet. A key indicator is the growing dispersion in analyst estimates for S&P/ASX 300 companies. This measure, reflecting analyst disagreement on future profitability, has risen to 10.6, significantly above the 20-year average. Nicol noted, “Widening dispersion suggests consensus forecasts may be becoming increasingly stale, potentially creating greater scope for estimate revisions and earnings surprises.” He flagged risks for domestic-facing equities, including banks, housing, and consumer firms. High estimate dispersion also impacts resources like lithium miners Liontown and IGO, gold producers Ramelius and Newmonth, Whitehaven Coal, and oil and gas producer Santos. Other firms include cancer diagnostics giant Telix Pharmaceuticals, poker machine maker Light & Wonder, and family tracking app Life360.
Past seasons show the impact of small misses; REA Group shares plummeted 8 per cent in February despite a minor earnings miss. Macquarie’s John Conomos attributed such volatility to high-frequency trading and quant funds. Morgan Stanley’s Nicol added that nearly 30 per cent of ASX 300 companies have earnings estimates aged 80 days or more, contributing to potential surprises. Fundamental Investment Management’s Simon Conn anticipates a grim August due to Australia’s troubling economic outlook. Wilson Asset Management’s Damien Boey and Solaris Investment Management’s Michael Bell also highlighted concerns over AI spending, geopolitical issues, inflation, and cost pressures, suggesting companies with pricing power will fare better.
