Via the AFR:
Citi analysts Bryan Raymond and Craig Woolford on Tuesday published a 38-page report ranking the retailers the broker considers most exposed to a fall in house prices
According to the broker [Citi], Harvey Norman and Wesfarmers are most exposed, with 39 per cent of Harvey Norman’s group earnings driven by furniture and appliances and 40 per cent of Wesfarmers’ earnings from hardware chain Bunnings.
Metcash and JB Hi-Fi were also high up the list, with 25 per cent of the wholesaler group’s earnings from hardware businesses Mitre10 and Home Timber and Hardware, while about 18 per cent of JB Hi-Fi’s earnings are in whitegoods following its Good Guys acquisition.
“I’ve been doing this for 50-odd years, and I’ve had this question only asked 20 to 30 times. There’s not a lot of validity to it,” Mr Harvey said, noting that he hadn’t read the report and tended not to read any broker reports.
How reassuring, Gerry.
Discretionary retailers such as those above are certainly at the top of the list to avoid (or buy at the bottom). Other sectors to avoid include:
- banks;
- property services such listings providers, developers and realtors;
- building suppliers though some will benefit from fiscal stimulus and infrastructure;
- REITS despite plunging yields given the retail and commercial property shakeouts;
- cyclicals and industrials in general are to be avoided;
- weight quality over value or growth as well.
The only thing to own is defensives and dollar-exposed stocks. The former might include consumer staples, utilities and health care in which reliable yield will be valued as the cash rate collapses to zero.
Resources will depend on where the global cycle is at. Dollar-exposed industrials could do well but, again, it will depend upon the global cycle. Ditto for any portfolio of offshore stocks though given the AUD will tumble that provides a nice hedge.
If it’s a local bust then there’s good money to be made in offshore exposure (which is what we’ve seen so far). If it’s a global bust then you need to be hedged with bonds and/or cash. The good news is that Aussie bonds represent terrific value in global terms with yields still far above any other developed economy and good capital gains available if housing goes bust.
David Llewellyn-Smith is the chief strategist at the MB Fund which offers two options to benefit from a falling AUD so he is definitely talking his book. The first option is to use the MB Fund International Stocks Portfolio which is always 100% long as a part of your own asset allocation mix. The second option is to use an MB Fund tactical allocation in which we choose the asset mix for you, including exclusively international stocks, but with bonds and other assets as well to ensure a more conservative mix.
The recent performance of both is below:
The information on this blog contains general information and does not take into account your personal objectives, financial situation or needs. Past performance is not an indication of future performance.
