While the US Q2 earnings season exceeded expectations, with more than 80 per cent of S&P 500 companies beating forecasts, Australian results have been far more volatile.
Only a quarter of ASX 200 companies outperformed expectations, with 30 per cent surprising on the downside, raising questions about whether the index’s record highs in August are supported by company fundamentals.
“Concentration risk is a critical issue for Australian investors,” Harrison Lane, investments director at Apostle Funds Management, told InvestorDaily. “When these sectors face periods of weakness, investors are highly exposed to downside risk, with limited offset from other industries.”
Lane pointed to Commonwealth Bank as an example, describing it as “widely regarded as the most expensive bank in the world on a P/E basis”.
“While its strong performance has supported ASX 200 returns in recent years, any meaningful repricing could weigh heavily on domestic portfolios,” he said.
The country’s largest bank posted a record $10.25 billion profit, only to see its stock drop $12, wiping about $15 billion in market value within days.
While chief executive Matt Comyn suggested the slump was a one-off, market commentators warned at the time it could signal a longer-term trend.
And indeed, having breached a $300 billion valuation just months ago – the first ASX-listed company to do so – after its share price surged more than 30 per cent over the past year to above $190, CBA has since endured a difficult August, trading between $167 and $173 in the weeks following its results announcement.
Like financials, investors in the materials sector similarly face heightened risk, with resource companies remaining heavily dependent on ongoing demand from trading partners such as China.
“As China’s economy matures and its growth moderates, the demand outlook for Australian resources may soften,” Lane said. “On top of this, transition risks associated with the global shift to net zero are becoming increasingly material, adding further uncertainty for investors with a purely domestic focus.”
By contrast, the technology sector – a key global market diversifier – makes up just over 4 per cent of the ASX 200, significantly smaller than in markets such as the US, ultimately limiting Australian investors’ exposure to emerging technologies and AI-driven growth.
Given the local market’s elevated concentration risk, Lane stressed diversification across asset classes and geographies remains key.
“Accessing global opportunities offers the breadth and depth of markets that are not seen in a purely domestically focused portfolio,” he said.
Australia’s August earnings season has been one of the most volatile on record, with sharp share price swings highlighting both the fragility of corporate earnings and the market’s increasing preference for resilient, well-positioned companies.
Large-cap stocks took the heaviest hits, with significant moves in James Hardie, AGL, CSL, Sonic Healthcare, Woolworths, and Amcor, while small caps outperformed, buoyed by stronger growth prospects and expectations of further rate cuts.
Commenting on the results, Global X strategist Marc Jocum said the season highlighted the challenge for local companies to match global peers.
“With the August reporting season now behind us, only 20 per cent to 30 per cent of Australian companies managed to exceed earnings expectations, a stark contrast to the 80 per cent-plus beat rate observed in the US,” Jocum said.
“This disparity underscores the challenges Australian companies face in meeting investor expectations amid a moderating earnings outlook.”
While August was rocky for the ASX 200, September is historically known for testing investor sentiment, setting the stage for October to reveal whether the market can regain stability after a turbulent earnings season.
