US retail gloom
- From: "Ransack" <Ransack@xxxxxxxxxxx>
- Date: Wed, 31 Oct 2007 03:39:17 -0000
US retail gloom
Financial Times
Published: October 30, 2007, 23:03
Most US retailers have seen sales growth slip only modestly. Their
share prices tell a very different story. Employment and wages continue to
grow, and consumers appear only slightly more reluctant to open their
wallets. But fear is playing a strong role in deciding retailers'
valuations.
The sector's shares now trade at a five per cent price earnings
discount to the S&P 500 on expectations that macroeconomic worries and
higher fuel, housing and credit costs will inevitably take their toll on
spending. The picture at the retailers is mixed.
Sales of consumer staples are holding up reasonably well at the likes
of Costco, Wal-Mart and BJ's Wholesale. But September sales were
disappointing at department stores, which made big markdowns on
discretionary items to reduce swollen inventories. JCPenney and Nordstrom
both cut their third-quarter profit expectations after missing September
sales goals, as did Target.
A bout of warm weather made matters worse by propelling customers into
parks rather than malls. Home improvement leaders Home Depot and Lowe's have
taken a particularly harsh beating as the housing market continues to suffer
and consumers shy away from using home equity to finance big-ticket
purchases and new projects. Fallout from the housing slowdown should
continue to hit sales of discretionary goods more broadly for months to
come.
Shares of electronics retailer Circuit City, for example, have dropped
73 per cent in the past 12 months, Office Depot is down 59 per cent and
JCPenney is down 26 per cent, all hit by weak demand. All is not lost,
though. Federal funds futures are pricing in a strong likelihood that
interest rates will be cut further this week. Retailers have historically
outperformed the market during periods of monetary easing. And, after
several unnaturally warm weeks, there is now a nip in the air on the East
Coast.
Chinese real estate
It is becoming even tougher for foreigners to get a foot on China's
property ladder.
A raft of new regulations, many aimed at foreign investors, is
designed to ease pressure on the renminbi and reduce commercial property
inflation that is running at twice the pace of China's double-digit economic
growth rate.
Some efforts have been modestly successful. But, while foreigners get
much of the blame for rising prices, they account for only a fraction of
total real estate investment. Regulatory efforts must reach further into
China's economy to cool the market effectively. The latest rules require
foreign investors in property to register in China, gain frequent government
approvals, finance at least half of each project with equity, and use
renminbi-denominated debt. The rules have doubled the amount of time it can
take to close a deal, frustrating some speculators. But for well-capitalised
investors who have been navigating China's complex waters for years, the
rules are actually creating barriers for new competitors.
Returns for foreign investors will be harder-earned - particularly in
Shanghai, Beijing and other cities where regional officials are stricter at
enforcing the new laws.
Some foreign investors are weighing taking pre-flotation stakes in
Chinese developers, or trying to re-characterise their businesses to avoid
real estate classification. In addition, foreigners continue to team up with
Chinese nationals to help smooth transactions.
It is understandable that the Chinese government wants to secure the
foundations of its private property market and limit speculative investing.
But interest in real estate there remains as high as ever. In a regionalised
country where tens of millions of workers are migrating to cities each year,
patient investors should find plenty of opportunities.
September sales were disappointing at department stores, which made
big markdowns on discretionary items to reduce swollen inventories.
*************
I 'heart' Bush
he makes my shopping trips to New York sooo much more rewarding
.
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