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Even Bears Are Backing One Group of Australian Retailers

Even Bears Back Rare Bright Spot From Australian Earnings Season

(Bloomberg) -- Consumer discretionary stocks were among the few positives across the weakest Australian earnings season in five years. Even short sellers are paring bets.

Retailers providing electronics, travel and gaming beat the market’s low expectations due to resilient business models, although there will need to be ongoing signs of consumer spending to indicate a lasting recovery, said Katie Hudson, head of Australian equities research at Yarra Capital Management.

“We did see some companies talk about early signs of improvement,” she said. “The challenge will be whether that proves to be sustainable or not.”

Short-sellers seem to think so. Although the consumer discretionary sector is the most shorted on the benchmark index in weighted average terms, according to Bloomberg calculations on data compiled by the Australian Securities and Investments Commission, the rate of bearish bets is at its lowest in three months.

Even Bears Are Backing One Group of Australian Retailers

Still, strategists remain cautious about the outlook for equities amid a local economy growing at its weakest pace since 2009 and international ructions including the U.S.-China trade war, Brexit and the Hong Kong protests.

“You’ve got to overlay that with what’s happening on a global front and you can’t help but be a little bit concerned with what we’re seeing,” said Shaun Manuell, senior portfolio manager at AustralianSuper, the nation’s largest pension fund.

Goldman Sachs is moving more defensive in Australia, cutting energy to neutral and staying underweight on banks and growth stocks, equity strategist Matthew Ross wrote in a Sept. 8 note. Morgan Stanley strategist Chris Nicol remains “cautious” on the pace of the sector recovery and expects more stimulus will be needed to shift the market back to trend growth.

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“At a stage where markets are fully priced, there’s not a lot of leeway,” Manuell said.

Even Bears Are Backing One Group of Australian Retailers

JB Hi-Fi Ltd., an electronics retailer, surged to a record last month after sales were better than expected and it highlighted a positive start to the current financial year. Star Entertainment Group Ltd., which operates casinos in Sydney and on Australia’s Gold Coast, climbed the most in a year amid signs of improving domestic revenue early in the second half of 2019.

The Reserve Bank of Australia’s decision to lower interest rates in June and July, as well as the government passing laws to reduce the tax rate in the wake of a surprise election victory are seen providing long-term support for a sector where most of the retailers were cautiously optimistic in their outlook.

This comes a year after hedge funds shorted Australia retailers amid expectations that lower house prices would curb consumer spending. On Monday, Australia reported July mortgage approvals rose the most in four years as central bank interest rate cuts help revive the property sector.

--With assistance from Matthew Burgess and Rebecca Jones.

To contact the reporter on this story: Tim Smith in Sydney at tsmith58@bloomberg.net

To contact the editors responsible for this story: Lianting Tu at ltu4@bloomberg.net, Naoto Hosoda, Kurt Schussler

©2019 Bloomberg L.P.