By Raymond Chan

Happy Lunar New Year to all! We wish all readers a happy, healthy and prosperous Year of the Rooster. 

Since the beginning of the year, we have seen mixed performances from global markets:

ASX 200: -0.8% 5,620 points,

Dow Jones: +0.5%

S&P 500: +1.8%

NASDAQ: +4.3%

Nikkei 225: -0.4%,

Hang Seng: +6.2%

Shanghai: +1.8%

FTSE: -0.6%

AUD/USD: +5.3% at 0.7586

Iron Ore: +4.4%

Gold: +5.2%

Brent: -2%

Copper: +8.7% 

The Australian reporting season will kick start with market heavyweights Macquarie (MQG) and Transurban (TCL) early next week.

Based on consensus estimates, the EPS growth for the ASX 200 is expected to be 12% for FY17. This is important as after two conservative years of earnings FALLS (led by resources and energy), we’re likely to have one year of earnings GROWTH! 

It's no doubt the ASX 200 is trading on an expensive PE - over 16 times on FY17 estimates - and as such, investors will be looking for clues from reporting seasons on the sustainability of earnings growth (not only for FY17, but also for FY18). 

The key things to watch will be management commentary on:

(a) sustainability of payout ratio,
(b) planned capital spending,
(c) commodity prices (for miners),
(b) housing (for REITs and construction companies),
(c) interest rate (especially important on banks and infrastructure stocks) and;
(d) AUD/USD (for offshore earners)

Our strategy team wrote: “The diminishing risk of global deflation has prompted a revaluation of the outlook for growth among investors. Against an expensive market (>16x 12-month forward PE), the prospects for improved pricing power and demand have increased the appeal for the overlooked ‘value’ segment of the market (low price-to-earnings and price-to-book).

We think that ‘value’ [segment] (stocks with low expectations) has a higher propensity to surprise and therefore attract buyers this reporting season, while expensive stocks will be punished if elevated expectations are missed - Brambles is a timely reminder against complacency.” 

Further, mining stocks will also be the bright spot of this reporting season: both BHP and RIO may surprise on capital management after spending considerable time in cutting down costs and dividends during tough times.