'Grim' reporting season ahead: UBS

'Grim' reporting season ahead: UBS

The collapse in resources sector earnings due to falling commodity prices will be the driving factor behind a "decidedly grim" reporting season, warns UBS.

The UBS 2016 Reporting Season Preview, released yesterday, said ex-resources earnings trends are "far from buoyant" but nevertheless continue to grow at a subdued pace (approximately five per cent).

The Australian equity market is confronting a number of earnings headwinds beyond weak commodity prices, particularly at the "very large-cap end of the market", said UBS.

"Outside the 'top 20', the earnings picture is somewhat better, albeit the backdrop is one of moderate overall growth with a fairly [diverse] range of growth outcomes by stock," said the report.

The tailwind from a lower Australian dollar is still helping 2015-16 earnings per share growth for the US dollar earners segment of the market, said UBS.

"Domestically, consumer discretionary should be a relative bright spot with housing still buoying consumer spending and the NSW economy particularly strong," said the report.

"Resource-related industrials should report weak results although the market will be looking for any signs of a bottom in profitability given the extended poor performance (and level of short interest) in the sector," said UBS.

Within the financial services sector, UBS tipped IOOF Limited as a "potential large-cap negative surprise".

For IOOF, "weak flows present downside risk" and there is "potential for cost disappointment", said UBS.

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