Retailers’ gains insecure
The biggest one-day gains for the JSE’s general retail index in seven months on Monday could be short-lived.
General retailers including TFG and Mr Price began the week cheering some positive news, including further Chinese economic stimulus, but analysts cautioned that the same factors that led the index to lose 12% so far in 2018 remain.
The risk-on trade that prevailed on the day evaporated shortly after local markets closed on Monday, while further data on Tuesday showed that rising unemployment rates have underscored the extent to which consumers are under pressure.
Disposable income for most consumers is shrinking, given increased VAT, fuel costs, rates and electricity, said Argon Asset Management’s Bjorn Samuels.
“Given these headwinds, it is tough out there for retailers, especially those exposed to consumer discretionary spend, and we are already seeing multiple consensus earnings downgrades within the sector,” Samuels said.
As SA retailers tend to be favoured by foreign investors, it was unsurprising to see them underperform when there were large emerging-market sell-offs, said Samuels.
Sasfin Securities senior portfolio manager Nesan Nair said that apart from one or two stocks, such as Dis-Chem and Clicks, retailers in general posted mediocre performances over the past few years.
The JSE’s general retail index has performed slightly better than the all share so far in 2018, falling 12% versus the JSE’s 14%, although much of the losses of the latter are due to a 30% plunge by Naspers. So far in October, general retailers have lost 5.39%, compared with an 11.5% drop in the industrial index, which includes Naspers.
Analysts expect more volatility in local shares and the rand, given that the recent mediumterm budget policy statement has slightly increased the risk of SA receiving further negative reviews from ratings agencies.
One small reprieve this month has come in the form of declining oil prices, with Brent crude dropping towards $76 a barrel amid signs of increasing global supply. This has prompted analysts to predict a mild fuel price cut in November.