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Oliver's Insights – The profit reporting season and shares a year after the low

We are now coming up to the one year anniversary of the bear-market low in shares (Australian shares bottomed on 6 March 2009 and US shares bottomed on 9 March).

This note looks at the outlook for shares in the context of the Australian December-half reporting season just ended.

The key points are as follows:

- In terms of net positive surprises the reporting season just ended in Australia was the strongest since August 2007. Profits have now bottomed and with the economy picking up pace and costs well and truly under control, profits are likely to rise by around 20% over the next year.

- The upswing in the global profit cycle is a global phenomenon, albeit most evident in Asia and the US.

- As a result of the recent correction in shares and upwards revisions to earnings expectations, shares are now slightly cheap. Stronger earnings are likely to be a key antidote to worries about sovereign debt and monetary tightening in some countries this year.

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