The aggregate 2016 reported earnings were almost exactly in line with forecasts.
Seventy-nine percent of companies met expectations and the market delivered average earnings growth of 7.1%.
Australia, on the other hand, disappointed, with 2016 reported earnings coming in below forecasts at the aggregate level and delivering only 4.7% earnings growth — excluding mining and energy companies.
"These numbers were slightly skewed by some large disappointments as more than half of Australia’s top 50 listed companies delivered earnings at least in line with expectations."
The aggregate "miss" on earnings was lower than it had been in previous years, Mr Timms said.
Disappointingly, 2017 financial year earnings forecasts were pared back across both the New Zealand and Australian markets, a continuation of a trend seen for several years.
"Broadly, we observed companies remain cautious about top line growth, citing low inflation and competition."
The "cost out" story remained strong with a lot of companies working hard to deliver profit growth through margin improvement as a result of taking costs out and delivering better efficiency, he said.
Despite that dynamic, companies offering some cyclical exposure generally outperformed defensive companies in both Australia and New Zealand during the past reporting season.
Interest rates were becoming less of a driver of share prices as investors were becoming less sensitive to ongoing accommodative monetary policy.
Craigs still preferred New Zealand to Australia, Mr Timms said.
The sharebroker’s asset allocation strategy currently recommended investors hold a market weight position in New Zealand shares and an underweight position in Australian equities.
The reporting season had confirmed the strategy was still appropriate.
The New Zealand economy remained buoyant and Fonterra’s recent increase in the 2016-17 forecast farmgate milk price provided support to the dairy industry — one of the few weak spots in the economy.
The high currency would be a drag for 2017, and some of the downgrades in 2017 earnings per share forecasts were as a direct result of the stronger New Zealand dollar.
But New Zealand listed companies were in good health with strong balance sheets and solid earnings drivers, he said.
In Australia, broader economic conditions were improving and were supportive of equity markets but the environment would remain challenging for both the resources sector and the Australian banks.
There were some good opportunities outside those sectors but banks and resources made up nearly 50% of the Australian market and drove the under-weight view adopted by Craigs.
"We appear to be in a period of renewed volatility at present, which is not unexpected given the unusually long period of strength markets have experienced.
"We continue to recommend investors use share price strength to reduce lower quality holdings and share price weakness to reinvest in higher quality names offering superior earnings growth."
Recommended changes
• In New Zealand, investors should reduce exposure to Genesis Energy and increase exposure to Summerset.
• In Australia, investors should reduce exposure to Scentre Group, Telstra and Westfield Group and increase exposure to Computershare and Goodman Group.
