A buoyant mining sector is expected to disguise soft half year earnings reports from many listed companies over the coming month, according to Bennelong Australian Equity Partners.
"Outside the mining sector, the market in aggregate is at risk of disappointing," the fund manager's investment director Julian Beaumont said on Wednesday.
"Corporate earnings are unlikely to be as strong as expected, particularly among the domestic cyclicals that face an increasingly weak underlying domestic economy."
After 25 years of continuous economic growth, the business environment is getting tougher, with the annual rate of growth at its slowest rate since the GFC during the first quarter of the current financial year.
Mr Beaumont said there will be strong earnings performances from some companies - housing related retailers are benefiting from the property boom, and miners and mining services firms are enjoying higher commodity prices,
BHP Billiton, Rio Tinto and Fortescue Metals will in particular be boosted by a recovery in iron ore prices, hovering above $US83.00 amid heightened demand.
"The exception is the mining companies, which trade more on commodity prices than financial results," Mr Beaumont said, noting that earnings estimates aren't factoring in current spot commodity prices and have room to rise further.
Several companies have also issued profit warnings ahead of the reporting season, including organic infant formula maker Bellamy's, container provider Brambles, construction software group Aconex, serviced office firm Servcorp and international payments provider OFX.
Investors can expect a "subdued" Australian economy and share market in 2017, against a more upbeat international backdrop, Mr Beaumont told reporters at a briefing in Sydney.
The outlook hinges on the big mining and banking sectors. Miners are expected to continue to benefit from higher commodity prices, but there is more uncertainty for financials.
"Bank share prices have run strongly lately, with very little related to improving fundamentals, indicating limited upside from here," Mr Beaumont said.
Mr Beaumont said the local also market faces the risk of its rather bullish sentiment abating, as optimism about US President Donald Trump's impact on the US economy fades, and earnings expectations fall.
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