Australia’s sharemarket is on the precipice of a near-20 per cent collapse as a downturn in company earnings delivers a brutal reality check to sky-high valuations and complacent investors who have been riding the wave of passive money flowing onto the bourse.

That’s the ominous warning from MST Marquee, which believes that profits for the S&P/ASX 200 are on the verge of contracting for a third consecutive year, and that is at risk of extending into a fourth year.