Gross domestic product grew 0.5 per cent in the June quarter, and 3.3 per cent year-on-year, but Morningstar said this was “unrepresentatively strong” and warned the environment may not be as supportive of corporate performance as it appears.
“The latest evidence points in various directions but generally agrees on some recent slowdown,” the company said.
Morningstar cited the Australian Industry Group’s most recent sector indexes, which “all took an unexpected and marked turn for the worse in August” and fell to levels consistent with contractions in activity.
“Respondents’ comments suggested that there was no single factor behind the simultaneous setbacks, but nonetheless, there seems to have been a surprise and simultaneous weakening of activity across manufacturing, services, and construction, which is a troubling development,” Morningstar said.
The NAB monthly business survey for August was not quite as bearish, suggesting uneven but sustained improvement in Australia’s non-mining sectors, but Morningstar noted even NAB felt “the ground might be weakening underfoot”.
Morningstar said current share price valuations were in line with “expectations of high profit growth”, and investors were likely to be disappointed given the current price-to-earnings ratio on the S&P/ASX 200 index is 16.7 times earnings, which Morningstar added is “somewhat expensive”.
“Overall, the macroeconomic outlook does not look like one that will generate strong growth in corporate profits,” they said.
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