25 September 2017
Over the past week Australian shares were down 0.2% while small company shares were down 0.5%. Shares in developed countries were up 0.3% with the US market up 0.1%. Shares in emerging markets changed little. The Australian dollar fell 0.5% to 79.62 US cents. The Australian 10 year bond yield and the US 10 year bond yield rose to 2.79% and 2.25% respectively. The oil price was up 1.5% to $50.66 per barrel.
Global headlines of retail store closures and bankruptcies have persisted in the news over the past 12 months. In the past week, iconic company Toys ”R” Us filed for Chapter 11 bankruptcy protection in the United States. After disrupting toy retailers in the 1980s, it had come under pressure itself from Walmart and Amazon in more recent years. Locally, Amazon’s recent announcement of its plans to enter Australia in 2018 received a lot of attention, negatively impacting the share prices of Australian retailers such as Harvey Norman and JB HiFi.
Challenges for retailers also impact retail property which in turn has a direct impact on the performance of our investment options that invest in property.
While the growth in e-commerce has profound implications for both retailers and property owners, these are both positive and negative and potentially create opportunities. Successful retailers are changing the mix and offers, supplementing their bricks and mortar stores with online strategies. Similarly, mall operators are also actively evolving, with a much greater focus on ‘experiential’ marketing and food and beverage offers. The evolution of online retail also creates opportunities for logistics operators and industrial property owners including warehouses and distribution centres.
Much has been said about the potential negative impact of Amazon on the Australian retail market. According to APN/ICSC data, the United States has more than double the retail store space per capita than Australia, as well as much higher vacancy rates. As such, the likely impact locally is potentially very different to that experienced overseas. Additionally, some investment managers in the global listed property sector also believe that ‘investor perceptions’ have created attractive prices and investment opportunities across some of the best managed property portfolios.
As always, we continue to monitor developments and fund manager activity across all of our investment sectors likely to be impacted, including property (listed and unlisted) and listed shares, both in terms of headwinds and opportunities.
Robert Graham-Smith | Senior Investment Analyst