After a poor start to the year in January (down over 3%) the Australian Share Market has bounced back strongly; jumping 214.80 points to close at 5,404.80 which was a gain of 4.14%. The ASX/200 is now trading up 52.60 points or 0.98% for the calendar year to date.
Global equity markets started the month nervously; weakening after a worse than expected manufacturing survey from the US. Most economic data released through the month from the US (and elsewhere) tended to be weaker than expected. Global equity markets brushed this off and posted strong gains during the month. With the exception of Japan, most major markets posted gains and all major sectors posted gains.
On the local front reporting season dominated the local market.
The Consumer Discretionary sector was the strongest performing sector for the month of February posting gains of 6.0%. The energy sector was also strong, jumping 5.9% and Utilities posted gains of 5.8%.
The telecommunications sector was the worst performing sector, increasing only 1.4% for February.
The Australian dollar strengthened 1.8% to finish the month at $0.893. Gold also rose about 7% in February, helped by weaker global economic data and rising tensions in Ukraine.
UBS targets an ASX200 level of 5,700 by year-end 2014 (current level 5,386). This represents a total return potential capital return of 5.8%. UBS also expect the A$ to be around US$0.85 by year-end 2014.
Interim reporting season dominated the local markets for February and has now wrapped up.
Overall the profit season results were positive and we are starting to see small earnings upgrades for the overall market. The big rebound in earning has been for the big miners.
We’re also seeing companies increasing their dividends with CBA, Telstra and Rio Tinto all increasing their dividend.
The big iron ore miners BHP, Rio Tinto & Fortescue all boasted healthy margin lifts. Within the industrials sector, profit margin improvement was delivered by Boral, Resmed, Telstra, Downer EDI and CSL. Cost cutting has again been a dominate theme through the reporting season.
The banks were typically solid (ANZ & CBA posted strong results) though the market appeared to favour value (ANZ) over quality (CBA). NAB was marginally disappointing (soft revenue).
The housing sector has on average performed well with signs of improving activity boasting interest in the sector.
Given the solid February reporting season we see relatively minimal risk to full year estimates for 15% earnings per share growth (EPS) for the financial year 2014 (8.7% EPS excluding resources). Key swing factors for earnings estimates within Australia will be the Australian Dollar, the local economy (better or worse) and the iron ore price.