Nasty cocktail knocks retail shares

Comment on this story
IOL pic jan29 money man on coins

Johannesburg - Retail shares came tumbling down yesterday, with analysts saying the increase in interest rates would further constrict consumer spending.

At the same time, retailers would probably suffer from the weakening of the rand.

Woolworths slipped 4.46 percent to close at R63.25 and Shoprite dropped 2.67 percent to R145.50, while Foschini shed 2.07 percent to R94.50 and Truworths gave up 1.86 percent to R74.

Jean Pierre Verster, an analyst from 36One Asset Management, said retail stocks had reacted negatively to the hike in the repo rate.

He said both retailers and consumers would suffer. “It is the worst of both worlds… all debt linked to the repo rate will be more expensive.”

In addition, Verster said the rand had weakened on the announcement. He thought this was on “disappointment that South Africa did not go as far as Turkey – in terms of the central bank raising the rate significantly”.

This meant imported goods would become more expensive as selling prices were raised to offset the weakening rand. At the same time, consumers would have less disposable income because the cost of servicing debt would increase.

“So it is the worst of both worlds for retailers, seeing that their costs will go up but their selling volumes could go down,” Verster said.

Ron Klipin, a retail analyst at Cratos Wealth, agreed that retail stocks did not take the interest rate news very well. He said that from a global point of view, South Africa was experiencing a general sell-off of its bonds and equities.

“This is part of a general exodus from emerging markets, with a flow of funds going back into developed markets,” Klipin said. – Business Report

sign up

Comment Guidelines

  1. Please read our comment guidelines.
  2. Login and register, if you haven’ t already.
  3. Write your comment in the block below and click (Post As)
  4. Has a comment offended you? Hover your mouse over the comment and wait until a small triangle appears on the right-hand side. Click triangle () and select "Flag as inappropriate". Our moderators will take action if need be.

  5. Verified email addresses: All users on Independent Media news sites are now required to have a verified email address before being allowed to comment on articles. You are only required to verify your email address once to have full access to commenting on articles. For more information please read our comment guidelines