The ASX finished the week in a technical correction, pushed down amid a storm of profit announcements of weak earnings growth. Photo: Dominic LorrimerReporting season had a dismal second week that dragged the Australian equities market to a seven-month low and into a technical correction as profit numbers underwhelmed and a shock devaluation of the yuan sparked volatility in global markets.
The sharemarket slumped into official correction territory on Wednesday with the benchmark S&P/ASX 200 index falling 10 per cent below its April high. Friday reinforced that trend, as energy names and the big banks helped push the benchmark index down 32 points, or by 0.5 per cent, to 5356.5, and 2.2 per cent lower for the week.
The week was dominated by a hectic schedule of profit reports, a $5 billion capital raising by the Commonwealth Bank of Australia, and a surprise devaluation of the Chinese currency, which spooked global markets and triggered further volatility in commodity prices.
On Friday energy companies suffered the heaviest share price falls as the oil price continued to come under pressure. Santos plunged 9 per cent on the day to $5.99, down 11.3 per cent for the week, as investors fretted over the possibility the debt-laden company would need to raise capital. Woodside Petroleum was down 3.3 per cent on Friday and for the five sessions to $32.84.
The week saw major companies such as the Commonwealth Bank, Telstra and property powerhouse Mirvac release results, as well as Ansell, Cochlear and Fairfax Media.
Tribeca senior fund manager Sean Fenton said the disappointing week was due to weak earnings growth across the board.
“There seems to be a general inability, especially at the larger end of the market, to actually grow earnings,” Mr Fenton said. “Some companies have pulled off significant jumps but it remains to be seen if these are not just one-offs.”
Mr Fenton said poor earnings growth was particularly hurting the big banks, which are faced with further challenges around raising capital to satisfy increasingly stringent regulatory requirements.
“There are a few different moving parts in banks but when you force them to raise more capital it tends to damage their earnings. Their lending books are so big now that the ability to grow it is limited as costs keep rising.”
The Commonwealth Bank on Wednesday announced a $9.4 billion profit and a $5 billion fundraising round to bolster its capital reserves and entered a trading halt. But the move pushed the financial sector into the red with ANZ Banking Group finishing the week down 1.6 per cent at $29.29, National Australia Bank finishing 3.2 per cent lower on $31.76 and Westpac Group closing the week at $31.33 down 1.5 per cent.
Another ASX-topping company shedding value was Telstra. The telco giant’s shares tumbled 3.3 per cent this week to close at $6.08, despite meeting $4.23 billion full year profit and upping its dividend from 29.5 cents to 30.5 cents.
Among the more encouraging earnings results were JB Hi-Fi reporting a 6.3 per cent rise in profits and Automotive Holdings 20.8 per cent jump in its annual earnings.
The biggest gainers of the week were Greencross, up 23.8 per cent to $7.13, after the pet care business bounced back on strong results after months of sell offs triggered by a slight profit downgrade, and News Corp, up 8.8 per cent to close the week at $20.17, despite posting a $202 million net loss, due to a $617.4 million impairment related to its restructuring.
Some of the biggest losses of the week was sustained by Ansell, after revealing profits that had been buffeted by currency shifts throughout the year. The stock finished the week down 14.2 per cent at $21.24. Computershare also disappointed jittery investors with its profit release, and its shares plunged 17.2 per cent over the five sessions to finish at $9.84.
Meanwhile, China’s currency devaluations sparked heavy volatility across Asia-Pacific financial markets, which kept a lid on the big miners despite a small pick-up in iron ore late in the week.
Rio Tinto finished the week at $51.13, down by 4 per cent while BHP Billiton finished at $25.32, down 2.4 per cent. Fortescue Metals group was down 4.8 per cent to $1.79 while Newcrest Mining almost had a good week as the gold price recovered, down only 0.1 per cent to finish at $10.95.
One of the worst company reports of the week was Atlas Iron. The company has a market cap of just below $80 million but it reported a staggering $1.4 billion loss due to this year’s plummeting iron ore price. It finished the week at 31¢, down by 3.1 per cent.
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