China bid to calm credit crunch fears
The profit warnings came as the Australian sharemarket slipped to its lowest level for the year on Tuesday, as fears of a credit crisis in China - the world's second largest economy - triggered another plunge in global stocks.
But Chinese central bank officials stepped in late Tuesday to reassure markets they would ensure sufficient liquidity was kept in the market to support growth. This spurred a late rally in Chinese stocks, after markets there fell deep into the red for the second consecutive day.
Australian shares pulled back from the day's lows, with the S&P/ASX 200 Index closing 13.1 points lower at 4656 - only eight points above where it started the year. The broader All Ordinaries closed 17.6 points lower at 4633.5.
Analysts said the profit warnings, which come as many companies are about to sign off their full year accounts, show the economy was not being sufficiently boosted by growth in non-mining sectors.
Food products group Goodman Fielder issued a profit downgrade on Tuesday, just days after diversified Lend Lease warned the construction sector had weakened.
Insurer AMP said on Monday it expected lower first-half underlying profits following poor claims and lapses in its Australian wealth protection business. Earlier this month, hearing implant manufacturer Cochlear said it expected a lower net profit for the first half of 2013, while waste handler Transpacific flagged weaker earnings.
"I think there's no doubt that the transition's been a bit sluggish, particularly on the housing construction side, where there's been some weakness," UBS head of strategy David Cassidy said.
"I think the soft patch is going to extend until the election at least."
Deutsche Bank's head of equity strategy, Tim Baker, said the recent profit downgrades continued a trend over the past few years.
"I think the risk though is that December-half earnings need to be trimmed a bit, given that momentum in the economy doesn't appear to be particularly good based on the recent data flow," Mr Baker said.
AMP's earnings warning reflected the stress being felt in the Australian economy amid a peak in the mining investment boom, Goldman Sachs analysts said.
"Australian households continue to save their cash, which is being reflected in poor claims and lapse experience in its Australian wealth protection business. There continues to be stress out there, particularly in the non-mining economy," the analysts said. They said the Reserve Bank should cut rates to stimulate the economy.
Analysts said they expected the profit outlook next year to be boosted by a weaker Australian dollar, which has fallen more than 12 per cent since mid-April, lower interest rates and a revival in business confidence after the federal election.
Central bank steps in— Page 27
Frequently Asked Questions about this Article…
A string of profit warnings reflected slower-than-expected growth in parts of the Australian economy, especially outside the mining sector. Companies mentioned in the article that issued warnings or downgrades include AMP, Goodman Fielder, Lend Lease, Cochlear and Transpacific. Analysts say the warnings point to weakness in areas such as housing construction and consumer demand.
Fears of a credit crisis in China triggered another global stock sell-off and pushed the Australian sharemarket to its lowest level for the year. The S&P/ASX 200 fell 13.1 points to close at 4,656 (only eight points above the start of the year), and the All Ordinaries closed 17.6 points lower at 4,633.5.
Chinese central bank officials stepped in to reassure markets they would keep sufficient liquidity in the system to support growth. That reassurance spurred a late rally in Chinese stocks and helped Australian shares recover from their intraday lows, illustrating how policy moves in China can quickly influence global market sentiment.
Analysts noted that profit warnings from well-known firms suggest the economy isn’t being sufficiently supported by growth in non-mining sectors. UBS’s head of strategy David Cassidy pointed to a sluggish transition with particular weakness in housing construction, which is weighing on earnings and economic momentum.
AMP said it expected lower first-half underlying profits due to poorer claims experience and higher lapses in its Australian wealth protection business. Goldman Sachs analysts interpreted the warning as evidence that Australian households are holding onto cash—creating stress in the non‑mining economy amid the peak of the mining investment boom.
Yes — strategists flagged downside risk. Deutsche Bank’s head of equity strategy Tim Baker warned that December-half earnings may need to be trimmed because recent economic momentum doesn’t look strong based on incoming data. UBS also said the soft patch could persist at least until the federal election.
Analysts said a weaker Australian dollar (the article notes it had fallen more than 12% since mid‑April), lower interest rates and a revival in business confidence after the federal election could help lift the profit outlook next year.
Investors should watch profit updates from companies (especially December‑half results), developments in China’s liquidity and policy responses, movements in the Australian dollar, Reserve Bank interest‑rate decisions, and indicators for housing and consumer demand—since these factors were highlighted by analysts as key drivers of near‑term earnings and market sentiment.
Call 1300 880 160
Start a chat
Schedule a call
