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ASX 200 shakes off recession fears: What it means for your investments

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The ASX 200 remains strong with businesses reporting resilient results, shaking off fears of a recession, an industry expert reveals.

Figures released by investment manager Martin Currie show the overarching theme coming out of reporting season – inflation, rate rises and fears of a recession are just not hitting businesses' bottom line.

Well, at least not yet.

Headline results including Qantas's $1.4 billion profit, supermarket giants Woolworths' $907 million profit (up 14%) and rival Coles' $643 million profit (up 17.1%) reveal Australians are still spending.

This is despite central banks raising rates 9 times in a row.

In fact, Australia's largest bank Commonwealth reported a record $5.15 billion profit, inadvertently saying that rising rates are helping the bank's bottom line.

Why did companies outperform?

The good news for investors is profits are up from a year ago.

About 65% of businesses are reporting earnings per share (EPS) figures in line with or above expectations.

Going further, AMP Capital's chief economist Shane Oliver noted at the halfway point of earnings season that 59% of businesses are up a year ago, albeit following COVID.

Meanwhile, 57% of ASX companies have lifted their dividends in comparison to when they paid out in August.

Martin Currie chief investment officer Reece Birtles explains that business performance has largely been based on whether they can pass on costs.

"The dominant themes influencing company beats and misses have been pricing power, cost pressures, leverage to interest rates, COVID reopening and resilient but softening consumer and business demand," Birtles told investors.

Interest-rate-induced recession simply have not shown

The investment manager also highlights that businesses are not showing any signs of a recession.

This is despite companies reporting economic pressures in their guidance.

"We have been looking for material evidence of the interest-rate-induced recession. However, the numbers simply don't show that yet, notwithstanding management commentary pointing to some clouds on the horizon," Birtles said.

He also points out that businesses are becoming less concerned with some of the more dominant issues over the last 6 months.

"There has been surprisingly little mention of supply-chain pressures and the energy crisis although there have been pockets of concern over the potential impact of government intervention."

What's next for the market?

Despite a strong reporting season, Martin Currie believes there are "cracks" emerging if you look across sectors.

This is especially true for investors in energy and utilities.

Birtles said, "Lower quality stocks have also borne the brunt of negative earnings revisions, although an increasing number of mid-strength quality companies have generated negative EPS outlooks, indicating a tougher profit cycle for some on the horizon."

Moving forward, the investment manager noted that EPS over the next 12 months is expected to hold steady, with sales offsetting rising costs.

"This points to an environment where stock selection will continue to dictate the total return outcome for portfolios more so than has been the case over the last decade," Birtles concluded.

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