Why Harvey Norman, JB Hi-Fi and Premier Investments shares are set to rally before Christmas

Shares in electronics and clothing retailers will continue to rise in the run-up to Christmas because they are not exposed to China, an expert says.

Harvey Norman, JB Hi-Fi and Premier Investments – the owner of Just Jeans and children’s retailer Smiggle – have bounced back since June despite the Reserve Bank’s seven consecutive monthly rate hikes.

Saxo market strategist Jessica Amir said these retailers were likely to continue to post strong profits before Christmas because they were not dependent on selling products to China, where strict Covid-zero policies have sparked protests.

“So stocks in Australia like JB Hi-Fi, Harvey Norman, Premier Investments, now all those stocks are trading about 20 percent from June, so keep an eye on them, they’re not exposed to China,” she said. .

“They’re likely to expand their profits.”

Ms Amir argued that the end of lockdowns also meant retailers would have a great Christmas.

“It’s the first time we celebrate Christmas without global lockdowns, with the exception of China,” she said.

“Also consider that retailers are doing pretty well after the Black Friday sales and ahead of the potential, probable Santa rally.”

Shares of Harvey Norman are up 20.8 percent since June to $4.29, though they are 23 percent below the March level of $5.58.

Billionaire Gerry Harvey’s furniture, electrical, carpet and bedding retailer has stores in New Zealand, Singapore, Malaysia, Ireland, Northern Ireland, Slovenia and Croatia, but nothing in China.

JB Hi-Fi shares are up 19.1 percent since June to $44.15, but they are 20.9 percent below the March high of $55.85.

Premier Investments has seen its share price rise 32.7 percent since June to $25.58, but is down just 10.8 percent since hitting $28.68 in March.

These retailers have rebounded in the Australian stock market even as inflation hit a 32-year high of 7.3 percent in the year to September.

Since May, the Reserve Bank of Australia has also raised cash rates seven times to a nine-year high of 2.85 percent.

Despite this, credit card data from the Commonwealth Bank and ANZ showed strong retail spending during the Black Friday sales.

Commonwealth Bank economist Stephen Wu said a series of recent rate hikes would not slow credit card spending just yet, citing internal CBA data for the week to Nov. 25.

“There is a delay in monetary policy transmission,” he said.

“It takes time for higher cash rates to flow into higher mortgage payments.

“And there’s also likely to be a further delay between when consumers start adjusting their spending habits.”

Mr Wu said the 0.2 per cent fall in national retail sales in October – the first drop for 2022 – was just a case of consumers putting off major purchases for Black Friday.

ANZ data on its customers also showed that Black Friday sales spend in 2022 was stronger than at the end of 2019.

That was a pre-pandemic era when inflation was just 1.8 percent — a level well below the RBA’s target of 2 to 3 percent.

ANZ economists Madeline Dunk and David Plank said: “The momentum on key categories such as department store purchases, clothing and furniture all outpaced 2019 Black Friday spending.”

In terms of stocks exposed in China, Ms Amir suggested mining giants BHP, Rio Tinto and Fortescue would face a tougher time as Covid restrictions reduced demand for iron ore, the raw material used to make steel.

“Keep an eye on stocks exposed to China this week,” she said.

“They can be vulnerable given the lockdowns in China and the protests.

“With what’s going on in China, we could see commodities — oil, iron ore, copper, lithium — they could see demand slowing down and their prices could be prone to a pullback.

“This is important because it supports the profitability of some of the largest companies in the world.”