Retail stocks further out of favour

31 Jan 2014

Retail shares fell further out of favour with investors‚ as market participants digested the bitter consequences of a higher interest rate on South African consumers already struggling to make ends meet.

Retail shares have been hit by the increase in interest rates. Image: Idea-go Free Digital Photos

At the conclusion of the three-day monetary policy committee (MPC)‚ the Reserve Bank announced a surprise 50 basis point rate hike‚ which led to heavy selling pressure among key stocks in retail companies that rely on consumers exposed stocks.

On Thursday (30 January)‚ Woolworths was down 3.48% to R61.05 after closing down more than 4% lower the previous day; Truworths lost 3.73% to R71.24‚ having fallen nearly 2% on Wednesday and Foschini fell 3.02% to R91.65‚ extending its more than 2% loss in the previous session.

Recent trading updates from the country's leading retailers have pointed to a significant slowdown in revenue growth.

High indebtedness‚ slow income growth and rising inflation are among the factors that have caused South African consumers to tighten their belts.

Figures from national credit regulators show that the number of consumers with impaired records - accounts that have not been paid for three months or more - rose to 9.76m in the third quarter from 9.69m in the previous quarter.

Higher interest rates will make servicing debt more expensive and may cause consumers to cut their spending further. This is expected to hurt retail stocks and other sectors exposed to consumers such as banks.

On Thursday (30 January)‚ the general retailers index was down 2.61%‚ bringing losses since the beginning of the year to nearly 12%. The JSE all share has fallen about 1.88% during the same period.

Source: I-Net Bridge

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