The pick-up in inflation across developed economies has led to a boost in global profits, giving investors cause to cheer the third and final phase of the Australian equity earnings expansion, says Credit Suisse. 

Initially sparked by a recovery in commodity prices that have boosted resources stocks, the bank believes the rest of the market is set to enjoy earnings-per-share growth, as the global economy normalises and central banks begin to tighten interest rates. 

"Expect more bull," writes Hasan Tevfik, head of Australian equity research at Credit Suisse, whose team, for the first time in 10 years, forecasts all major sectors to record positive earnings-per-share growth over the next 12 months. 

"A stronger global economic backdrop and a stabilising Aussie economy should be enough to support further earnings-per-share growth from here," he writes. 

Company profits hit a cyclical low in August 2016, and since then earnings-per-share has increased 15 per cent. Credit Suisse forecasts single digit earnings-per-share growth for the 12 months ahead. 

"The combination of rising earnings and higher bond yields is a positive one for value and cyclicality in Australia."

Cyclical stocks benefiting

In a case of a rising tide lifts all ships, Mr Tevfik points to a synchronised lift in earnings-per-share for all developed markets; namely the US, continental Europe, Japan and the rest of Asia.

Closer to home, value-based and cyclical stocks are the beneficiaries of this worldwide earnings pickup, with the likes of AMP, Graincorp and Nine Entertainment catching Credit Suisse's eye. 

Mr Tevfik does not expect this the broad-based earnings expansion to flow through to the likes of APA, Healthscope and Medibank.

Fund managers, who have suffered at the hands of widespread passive investment strategies and their popularity, were the best performing industry in the second quarter of 2017; rallying 42 per cent on average and enjoying stronger inflows. The recovery comes after being one of the worst performing sectors in the first quarter. 

Retailers, which were battered during the second quarter thanks to low wage growth, high level of household debt and the threat of Amazon's arrival, have rallied so far in the third quarter.

The earnings expansion in Australian equities is underpinned by an improvement in the underlying economy. As mining investment dried up, nominal GDP contracted by about $36 billion a year, whereas it had been contributing that much between 2011 and 2013.

Property in for moderate slowdown

"We estimate in 2017 mining investment will account for just under 3 per cent of GDP which is in line with levels pre the commodity boom," writes Mr Tevfik. "We forecast the drag from the sector will diminish further from here and soon end."

Conversely, voracious demand for housing has lifted housing investment to account for 6 per cent of GDP, which Credit Suisse believes is close to cyclical highs. 

But, the bank sees the impending slowdown in housing investment as more moderate and does not expect a sharp crash in housing prices.