The sharp fluctuations in share prices have overshadowed perceptions of the Australian corporate reporting season last month, with Morningstar highlighting that share market returns were among the best in 20 years.
However, the research firm believes the strong returns from Australian shares are unlikely to be repeated in 2025.
Market strategist Lochlan Halloway said the ASX 200 index rose almost 3% in August, which ranked amongst the best reporting season returns in the last 20 years.
“No small feat, given valuations looked stretched coming into reporting season and plenty of macroeconomic risks linger,” he said in a research note.
Shares were also more volatile than usual as the prices of companies moved more than 6% on the days they reported, with about 25% changing by more than 10%.
“But if we take a longer-term perspective, and judge reporting season not by stock price moves, but changes in intrinsic value, we see a different picture,” Halloway wrote.
Morningstar upgraded fair values for 44% of reporting companies, which was more than in recent reporting cycles, while the proportion of downgrades was average at 14%.
He said results mostly met consensus expectations, and although it did not mean investors were getting good value for money, it was not sufficient to trigger a de-rating.
Australian equities traded almost 10% above Morningstar’s estimate of fair value, the highest premium in the last decade, except for during 2021.
“It doesn’t mean we’re heading for a correction this time, but without a material improvement in fundamentals, it’s hard to see how the strong equity market gains of the past few years repeat,” Halloway wrote.
Reporting season volatility had been previously emphasised in research by Morningstar and Goldman Sachs, which found companies were punished for disappointing the market and rewarded for exceeding expectations, more than usual.
