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Retail sector leads the upside on JSE; merry Xmas could be in store

The JSE's retail index leapt more than 2% on Wednesday, 12 November 2014, to lead the upside on the market and raise hopes that this Christmas could still be a jolly one despite a generally moribund economy.
Retail sector leads the upside on JSE; merry Xmas could be in store
© Gordan Jankulov - Fotolia.com

The index‚ which contains stocks like Truworths‚ Woolworths and Spar‚ gained a little over 2%. By contrast‚ the overall market ended flat as some industrial heavyweights battled and the US started on a sour note‚ looking set to snap a six-day streak of gains.

Some local analysts have preferred a strategy of only buying selected retailers rather than the sector as a whole.

Spar (SPP) soared nearly 9% to a record high of R145 after reporting full-year profit growth of 12.6%‚ helped by its recent acquisition of Irish food and wholesale distribution company‚ the BWG Group.

Investment strategist at Citadel George Herman said while he remained "very sceptical" of the retail sector as "the SA consumer is facing some serious headwinds"‚ foreign buying interest may still be seen.

"There are differences in the income bands and things are a lot worse at the lower end. But then‚ again foreign buyers do want that exposure and so you may find certain stocks doing well‚" he said.

Another investment analyst from a major house said on Wednesday he was watching lower petrol prices as a catalyst for potential growth in consumer spending going into Christmas. The significant drop in oil prices to levels last seen in 2008 should help bring local petrol prices down ahead of the festive season. "Petrol prices and lower oil price could provide a tailwind rather than a headwind‚" he said.

However‚ the global backdrop is not as healthy as many local companies may like.

The outlook from Europe was not much better than in the US on Wednesday. According to Dow Jones Newswires economic growth is set to slow in the eurozone and the UK over coming months‚ while remaining at current modest rates in most of the world's other large economies‚ according to leading indicators released on Wednesday by the Organization for Economic Cooperation and Development.

"There's an increasing concern that [Europe's] economic problems will spread‚" Jack Ablin‚ chief investment officer at BMO Private Bank told Dow Jones Newswires.

In data retail trade sales as measured in real terms (constant 2012 prices) increased by 2.3% year on year (y/y) in September after increasing by a revised 2% (2.1%) y/y in August.

But Barclays cautioned in a note that "looking ahead‚ our view remains that the outlook for household consumption spending is downbeat".

Source: BDpro via I-Net Bridge

Source: I-Net Bridge

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