For all that the slump in technology stocks has headlined a treacherous year for global equity markets, there is one sector that is faring even worse.
The MSCI World Retailing Index, which includes stocks such as Target, Zalando and Amazon.com, is on track for its first negative year since 2008.
The gauge was down about 29 per cent in 2022 through Thursday, surpassing even the 24 per cent decline of the MSCI World Information Technology Index.
The same inflation worries that have sent shivers through technology stocks are also taking a toll on retailers, leading to a squeeze on disposable incomes and pushing up costs of everything from transport to labour.
Warnings from behemoths such as Walmart and Target have shaken investors, and many analysts say they may not be the last.
“We are at the beginning of an inflationary spiral,” said Alasdair McKinnon, chief investment officer of Sgurr Ventures, speaking before Friday’s data showing an unexpected acceleration in price gains in the US.
“This squeeze in consumer incomes has come as a surprise to many investors.”
Take Target's profit warning on May 18 sent the stock down 25 per cent, the biggest one-day drop since the Black Monday crash of 1987.
What is worse, only three weeks later the US retail company cut its outlook again — one that raises worries of a fast-deteriorating consumer environment.
Walmart, meanwhile, said this month that it needs another two quarters or so to work through an inventory surge that prompted markdowns and contributed to May’s 16 per cent decline in the retailer’s stock.
Cautious tones were also broadcast by several apparel retail companies, including Abercrombie & Fitch, American Eagle Outfitters and Gap. And after one of the worst first-quarter earnings seasons in recent memory for apparel names, there may be more misery to come.
“We’ve only really had one quarter of negative surprises,” said John Zolidis, founder of Quo Vadis Capital.
“Normally in a recessionary cycle, there will be several rounds of cuts before the outlook and stocks bottom. Unless we see a reversal of inflation data and a less hawkish approach from the Federal Reserve, our guess would be that we’re closer to the beginning of the pain than the end of it.”
Do not only take his word for it, though. The most powerful person in the banking industry, JP Morgan Chase's Jamie Dimon, said an economic “hurricane” is on the way.
“Investors are worried about every datapoint pointing to further incremental inflation,” said Michel Keusch, a fund manager at Bellevue Asset Management.
“The wake-up call started with the comments from Walmart and Target, and since then we have seen many retailers warning, adding to the general pessimism.”
While such concerns have been reflected in reduced valuations this year, retail stocks still are not cheap. The MSCI World Index’s retailing subgroup remains more expensive than the main benchmark in terms of forward price-to-earnings ratios, due in large part to the presence of richly valued online merchants such as Amazon.com and Zalando.
Meanwhile, short sellers are seeing an opportunity, seeking to sell borrowed stock and buy it back for less. Pet products retailer Chewy and Swedish fashion chain Hennes & Mauritz are among the most shorted stocks in the sector, with average short interest rising to 5.4 per cent of free float for the MSCI retail subgroup, from 3.5 per cent in January, according to IHS Markit data.
With inflation and living costs rising pretty much everywhere, few stocks are immune. In the UK, where power bills are surging and consumer confidence plunging, the likes of Next, Marks & Spencer Group and online fashion retailer Asos have seen a sharp sell-off.
In Asia, the sector is meeting a similar fate, with the Bloomberg Asia Pacific Retail Index down 20 per cent this year and bellwether Australian retail-chain operator Wesfarmers falling 26 per cent.
There are some outliers. Sat Duhra, a portfolio manager at Janus Henderson Investors, said the quality domestic consumer names in China are beginning to appear attractive after a deep correction.
Not everyone is tightening their purse strings, with some consumers still prepared to spend lavishly. Airlines bookings are surging, while luxury spending has not fallen in the same way it did in 2008.
Retailers known for offering big discounts are also doing well as lower income households seek cheaper alternatives. TJ Maxx owner TJX Cos’ margin performance shone against peers while the shares of discount-store operators Dollar Tree, and Dollar General rose steeply in one day after their sales both beat analyst expectations.
“It can seem hard to reconcile comments from Walmart on some consumers trading down in lunch meats due to inflation, with those from Remy-Cointreau seeing healthy momentum for its Louis XIII cognac,” said Swetha Ramachandran, a portfolio manager at GAM Investments.
As if investors were not nervous enough already, they also have history against them. The MSCI World Retailing index’s previous annual declines — in 2008, 2007, 2002 and 2000 — all came around recession years.
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Osasuna: García (14')
Real Madrid: Isco (33'), Ramos (38'), Vázquez (84'), Jovic (90' 2)
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UAE currency: the story behind the money in your pockets
FINAL RESULT
Sharjah Wanderers 20 Dubai Tigers 25 (After extra-time)
Wanderers
Tries: Gormley, Penalty
cons: Flaherty
Pens: Flaherty 2
Tigers
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Ain Dubai in numbers
126: The length in metres of the legs supporting the structure
1 football pitch: The length of each permanent spoke is longer than a professional soccer pitch
16 A380 Airbuses: The equivalent weight of the wheel rim.
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Although similar in its appearance, the concept of a fractional title deed is unlike that of a timeshare, which usually involves multiple investors buying “time” in a property whereby the owner has the right to occupation for a specified period of time in any year, as opposed to the actual real estate, said John Peacock, Head of Indirect Tax and Conveyancing, BSA Ahmad Bin Hezeem & Associates, a law firm.
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COMPANY%20PROFILE
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List of officials:
Referees: Chris Broad, David Boon, Jeff Crowe, Andy Pycroft, Ranjan Madugalle and Richie Richardson.
Umpires: Aleem Dar, Kumara Dharmasena, Marais Erasmus, Chris Gaffaney, Ian Gould, Richard Illingworth, Richard Kettleborough, Nigel Llong, Bruce Oxenford, Ruchira Palliyaguruge, Sundaram Ravi, Paul Reiffel, Rod Tucker, Michael Gough, Joel Wilson and Paul Wilson.
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Document everything immediately; including dates, times, locations and witnesses
Seek professional advice from a legal expert
You can report an incident to HR or an immediate supervisor
You can use the Ministry of Human Resources and Emiratisation’s dedicated hotline
In criminal cases, you can contact the police for additional support
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Under 12 – Minerva Academy
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Profile
Company: Justmop.com
Date started: December 2015
Founders: Kerem Kuyucu and Cagatay Ozcan
Sector: Technology and home services
Based: Jumeirah Lake Towers, Dubai
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Killing of Qassem Suleimani
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Directors: Carol Mansour and Muna Khalidi
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Rating: 4/5
Ms Yang's top tips for parents new to the UAE
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SolarWinds supply chain attack: Came to light in December 2020 but had taken root for several months, compromising major tech companies, governments and its entities
Microsoft Exchange server exploitation: March 2021; attackers used a vulnerability to steal emails
Kaseya attack: July 2021; ransomware hit perpetrated REvil, resulting in severe downtime for more than 1,000 companies
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HIJRA
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