The market hates retail – could there be fireworks this reporting season?
We were expecting some weakness to play out and that clearly wasn’t the case today with the mkt opening higher and pushing up throughout the session, only to see some decent lines of selling tick into the close…..the mkt selling off around -25pts from the 3.30pm high. Some dogs are clearly starting to wag their tales ahead of this reporting season and the areas of the mkt that have major headwinds – that are the ‘avoid’ type stocks / sectors are actually seeing most love.
Those areas of the mkt did best today, with Healthcare and Consumer Disc leading the charge – up +1.56% & 1.28% respectively – Telcos were back in the dog house down by around -1% - an overall range of +/- 53 points, a high of 5743, a low of 5690 and a close of 5726, up +38pts or +0.68%.
ASX 200 Intra-Day Chart
ASX 200 Daily Chart
The AFR running a front page this afternoon courtesy of a research report from DB, saying that companies that have been targeted by the short-sellers end up being the stocks that perform best during reporting season. They give some well researched stats to support the argument and it makes sense. It also supports the normal MM thinking that mkts often get things wrong, over react one way or another, and it’s dangerous going with the crowd.
Amaphobia - or in laymen’s terms, the complete fear of Amazon to the extent that Taxi’s drivers, Uber operators and even the Coffee man is getting nervous about its impending launch in Australia. Imminent doom awaits for our retailers and we simply shouldn’t be there. Of the 20 top shorts on the Australian market almost 50% of them are retailers of some description. To be fair, the impending entrance of Amazon is not all to blame – retail sales have also been incredibly weak due to higher living expenses and a lack of any meaningful wage growth – topics we covered this morning, however the table below is pretty extreme.
JBH for instance was happily trading on a PE around 22 times for an extended period and with the recent derating the stock now finds it on 15 times, yet we haven’t seen an impact on earnings (as yet). Harvey Norman is now trading on 10x which is cheap, but not as cheap as Myer which is trading around 9x post the recent downgrade. These are now cheap stocks with a lot of Amaphobia built into them, and maybe, just maybe the mkt has overreacted – it wouldn’t be the first time! We looked at IVF stocks this morning which have been whacked in recent times. In coming morning notes we’ll have a look at the retailers.
% of stock short sold
JH Hi Fi (JBH) – Daily Chart
Have a great night
The Market Matters Team
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