Earlier this week, Australian financial analysts expressed cautious optimism for the nation’s retail sector, anticipating a rebound. This sentiment stemmed from a perceived de-escalation in the Middle East, which was expected to stabilise interest rates and offer consumers financial latitude. Jarden pointed to encouraging end-of-financial-year shopping data, released Wednesday, as an early sign of recovery. The broker reported a 22 per cent year-on-year surge in online traffic across 53 tracked brands in June. With the ASX’s retail sector having climbed nearly 12 per cent over the past month, Jarden analyst Ben Gilbert, whose top picks included Sigma Healthcare, JB Hi-Fi, Universal Store Holdings and Flight Centre, noted a positive outlook for discretionary spending. Sigma Healthcare owns Chemist Warehouse. It is a major pharmaceutical wholesaler. Morningstar analyst Johannes Faul also believed many retail stocks looked “mostly cheap,” despite inflation’s impact on spending and the looming end of the fuel excise. His preferred picks included Harvey Norman, Domino’s Pizza, Endeavour Group, and IGA owner Metcash.
However, this fragile market confidence was abruptly shattered overnight as the ceasefire between the US and Iran collapsed following a declaration from US President Donald Trump. This immediate geopolitical shift propelled oil prices towards $US80 a barrel and government bond yields lower, instantly reigniting the threat of inflation. Ten Cap portfolio manager Jun Bei Liu swiftly advised investors to consider taking profits in retail positions. “They all had a bit of a rally and are now heading into a very tough consumer environment,” Liu cautioned, warning that the renewed Iran conflict would drive up oil prices and place further pressure on household budgets.
Wilson Asset Management investment analyst Sophia Mulligan further underscored the risk, predicting that retailers most exposed to increased freight costs would be hardest hit by the renewed fighting. Her top picks were piercing chain SkinKandy and Harvey Norman. SkinKandy is an Australian piercing chain. It is exploring opportunities for international expansion. Mulligan argued that Harvey Norman was materially undervalued, trading for the value of its property portfolio, suggesting the market currently attributes minimal worth to its core retail business despite existing cyclical headwinds.
