The hottest sector for three years in South Africa -- retail --
has been taken out and beaten in 2013. Beaten hard! We highlight
this because it is worth doing some work and making a call as the
market has had a large move.
[caption id="attachment_56910" align="alignright" width="300"
caption="Looking down on central Cape Town from Table Mountain,
Concerns are many on inflation and labor costs, which feeds
through credit issues from both concerns.
There is a slowdown in growth but not dramatically so. South
Africa is a victim of its own success, but many of these names are
seen as strong local plays and also with major exposure to broader
And there is a reason why this was one of the greatest trades in
emerging markets, if not the world for a long time. South
African retailers are some of the best-run companies in the world
and there is a local market in South Africa that supports its own,
in addition to plenty of emerging markets and EMEA (Europe, Middle
East, and Africa) dedicated investors that think of the likes of
Shoprite, Woolworth Holdings, Truworths Internal and the Foschini
group as examples.
Violent moves lower in these names of 15-25% in U.S. dollar
terms (the rand has sold off as well), have come in large volume.
There is real rotation going on by international
players. South African retail has been sold off. This is
setting up for a great opportunity to own some of the companies
whose charts and valuations had gotten away.
Earlier this week, sales updates were released that might allow
the water to begin warming up once again. Clothing trends
for retailers like Foschini (
) are positive despite tough comps. Jewelry (Truworths) and cell
phone sales have been sluggish and may remain so. Homeware operator
) continues to be the most impressive on trend performance and is
expected to maintain.