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Harvey Norman & JB Hi Fi Set To Have Good Christmas, Worth A Punt

Serious questions are being asked as to whether Black Friday sales weeks out from the peak Christmas New Year buying period will impact traditional sales for CE and appliance retailers who raked in millions last week selling discounted products ahead of the launch of Amazon.

The economy may be “mixed at best”, according to Deutsche Bank Aussie equity strategists who claim that the “Historically reliable indicators such as NAB business sentiment and employment are very strong.

The problem is that analysts and equity strategists are struggling to get a fix on what impact Amazon will have on the retail market or whether traditional retail revenue will be impacted.

“For example, earnings revisions for small industrials tend to move with business sentiment, but are currently a little below average. And despite strong jobs growth, consumer sentiment is poor, thanks to low wages growth.” said a recent Deutsche report.

The Deutsche Bank team does see a “tactical opportunity” to make some money in what appears to be an unloved sector where the likes of JB Hi Fi, Harvey Norman and David Jones operate.

They claim that these retail stocks are heavily out of favour. And when the market is crowded in one direction, there is always the chance that the pessimism has gone too far and liable for some reversion.

According to the AFR, Hedge funds have “high levels of short interest” in discretionary retail names, the strategists write. But with these stocks trading on relatively low price-to-earnings multiples, “there’s the risk of a squeeze higher if Christmas spending is reasonable”.

Second, households are generally speaking “income poor” – amid historically low wages growth and ramping household’s costs, such as in electricity and childcare. But they are also “asset rich”, the bank’s analysts write.

Household net worth is at record highs at about 7½ times annual income, they calculate. And that “wealth effect” may give Aussie shoppers the confidence to spend more over the holiday period.

“Rising wealth tends to lead to a lower saving rate,” they write, and further falls in this rate could bankroll more spending.

The strategists add JB Hi-Fi and Scentre to their model portfolio, up their exposure to Woolworths, and continue to hold Harvey Norman.

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