The Australian stock market is likely to see a strong return to earnings growth in 2017, according to a new Citi report.
A consensus of ASX 200 earnings estimates confirms a strong return to markets earnings growth in the 2016-2017 financial year, Citi says.
The bank’s new Australian Equity Strategy report found the consensus on markets earnings is set to bounce back from -11 per cent in 2015-2016 to 17.1 per cent in 2016-2017.
The main driver of the turnaround in earnings growth is the resources sector, which is seeing a sharp reversal from -42.4 per cent in the previous financial year to 82.7 per cent in 2016-2017.
The upgrades to resources earnings estimates reflect “better global growth than envisaged a year ago and hopes of further improvement,” Citi said.
The banking sector is expected to return to positive earnings per share growth in 2016-2017 at 2.7 per cent, as opposed to -3.5 per cent in 2015-2016.
Specifically on the banking sector, Citi noted that slowing balance sheet growth will temper revenue growth rates.
“Ongoing technology and restructuring spend will keep expense growth at similar pace to revenue growth, meaning pre-provision earnings growth will be modest. Credit costs should not rise materially in first half 2016-2017 results,” the bank said.
Wealth management companies are likely to have benefitted from stronger equity markets and foreign exchange movements in the December 2016 quarter, it added.
“Overall, reporting season looks like offering a mixed picture, but recent momentum in market earnings forecasts suggests the results are likely to sustain the rise in the ASX 200 in the past few months and keep open the prospect of reaching 6,000 by the end of the year.”