The Australian sharemarket rout and broad shopper pessimism have led many fund managers to avoid major retailers. Despite ongoing Reserve Bank of Australia interest rate rises, a contrasting view suggests opportunities exist. Morningstar director of equity research, Johannes Faul, contends that retailers are currently underpriced, with investors underestimating consumer strength. He believes price increases and income growth will underpin solid discretionary spending, even with subdued sentiment.
Faul highlighted Harvey Norman and Domino’s Pizza Enterprises as prime candidates for a rebound. This optimism, however, contrasts with many major fund managers sceptical about a retail stock recovery. Recent negative trading updates from Premier Investments, KMD Brands, and Myer, alongside Cue Clothing Company entering administration, underscore sector challenges. Regal Partners investment director Charlie Aitken advised clients to “be on the sidelines,” warning against premature investment in a volatile market.
Despite broader caution, Merlon Capital’s Joey Mui, whose firm manages approximately $1 billion, sees “pockets of opportunity.” Merlon has identified Super Retail and Treasury Wine Estates as attractive prospects. Super Retail Group operates a diverse portfolio of leisure and automotive retailing businesses. Its Super Cheap Auto franchise is a key part of its operations. Treasury Wine Estates is an international wine company. It owns and markets a wide range of global wine brands. Mui noted Super Retail’s Super Cheap Auto division as more defensive, while Treasury Wine Estates could benefit from a cyclical recovery in China after weak consumer demand. Global X’s Marc Jocum added property investment tax changes could boost home-improvement retailers. Mui cautioned that despite steep share price falls, some retailers, like JB Hi-Fi, still trade at stretched multiples.
