Joint Statement by Baillieu Limited Chairperson David Trude and Managing Director Gavin Powell

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AGM season and key indicators point to strong earnings

The ASX 200 has remained locked in a sideways pattern since June. Whilst the forward PE is elevated at ~19x, this reflects the combination of zero rates – the long-term bond is at just 0.8% – and expectations of a recovery – earnings expectations have risen ~7% since end-August. In this note we analyse current anecdotal evidence on earnings from both the annual general meeting (AGM) season and key economic indicators.

Whilst there have been wild divergences between winners and losers during COVID, the AGM anecdotes are generally improving and positive, whilst the economic indicators are increasingly consistent with a powerful V-recovery.

Key themes include:

  • strong consumer retail sales, supported by reopening, record low rates and fiscal transfers. Major brands’ like-for-like sales are booming, though the retail malls are still soft.
  • rebounding housing activity, especially in the US. Even in Australia, approvals, owner-occupier housing finance and home sales are in strong recoveries, whilst home prices appear to have troughed.
  • strong reopening rebounds in healthcare services and products, particularly pathology, dental and sleep apnoea products.
  • ongoing weak transport and infrastructure indicators, with borders slow to reopen and many workers working from home.
  • sluggish credit demand, with ample system liquidity.

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