The past month has seen many ASX listed companies report FY20/21 results. On average, about 40% have beaten forecasts, 40% were in-line and only 20% reported earnings that were below expectations.
Government spending and accommodative interest rates continue regardless of a strong economy, and companies reporting positive results. Corporate balance sheets are strong, private sector savings are increasing regardless of increasing discretionary spending.
A key trend during reporting season has been the number of companies lifting dividends, issuing special dividends or announcing share buybacks. Total dividends announced so far totals about $30 billion, with an additional $8bn in share buy-backs.
Fund flows into managed accounts have increased to historically high levels, a generally positive sign for markets.
At least 8 ASX listed businesses are under take-over, as large pools of capital seek income. The highest profile being Sydney Airports (SYD). Telstra’s sale of its poles and wires (Infraco) and Square’s acquisition of Afterpay (APT) are other high profile examples.
On a year-by-year basis, the clear long-term trend has been up. During the past 146 years of data from the ASX, the market (dividends plus share prices) has risen 117 years and declined 29 years. Overall, the market has generated a return of 10.8% per annum. Market volatility can create discounts in share prices resulting in the share market generating strong returns. Investor psychology and investment timeframes are as important as asset allocation and stock selection, with all these aspects requiring careful consideration.