Indecisive executives are to blame for the Australian sharemarket's disappointing performance, with a leading consultancy pointing to managements' inability to drive returns.
The Boston Consulting Group says Australian companies are poor performers when it comes to growing earnings and that the sharemarket has lost faith in managers' ability to do better.
The group's research finds that Australian earnings per share growth is far less than that of UK and US companies, suggesting local firms should be delivering more for their shareholders.
The total shareholder return for the ASX200 - Australia's top 200 companies - for the past two years was 2.5 per cent.
That compares to 8.3 per cent in the UK and 14.7 per cent in the US, where gross domestic product growth had been barely half that of Australia.
The report found capital efficiency - the cost of production - had been falling in most sectors in the Australian economy, but especially in resources and energy.
"As a general rule, we would say Australian companies have not been anywhere near best practice at doing that," the co-author of the report, Nicholas Glenning, told AAP.
Share prices have plunged, and therefore expectations of earnings along with it, by more than $150 billion collectively in the resources and banking sectors in the past year, fellow report co-author Ramesh Karnani said.
He said while resources companies had been performing strongly, they had also invested billions of dollars in projects with costs going up far more than they needed to because of poor capital efficiency.
"Those investments are yet to come to fruition and it is not clear what the returns will be, but the markets are sceptical the returns will be high," he said.
Banks were facing headwinds, including higher capital and funding costs and regulations, with investors doubting their ability to deal with it, he said.
The default strategy was to trim costs, lay off staff and shut down operations but that was not the answer, said co-author Jonathan Payne.
Companies that did well in tough times innovated and invested, including merging with or acquiring other companies for a bargain because of reduced share prices.
But they had to act decisively in cutting parts of the business that were uncompetitive, because of a high currency for example.
"If you are ahead of the curve in pursuing some of those more disciplined and difficult actions, it creates headroom then to invest in parts of the business that do have potential and are more growth oriented," Mr Payne said.
Mr Karnani said many Australian companies were too cautious.
Many American companies, in contrast, were decisive in making capital more efficient, shutting down unprofitable businesses and releasing - or recycling - cashflow to use where it would produce better returns.
"Take General Motors, the largest US company until a few years ago before it went into bankruptcy to be completely restructured and emerge two years later with a successful IPO," he said."Investors went back into it and it is an example of moving fast to restructure and is, I think, an example that could be followed in Australia."
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