Fears over price hike squeezes on spending have hit the markets. With pressure on companies to reduce costs to compensate for the increasing expenditure caused by high commodities prices and the weakness in the pound it is not difficult to speculate on a double whammy on discretionary expenditure.
This is cutting into share prices of the big high street chains as non-food retailers take it on the chin. It is not hard to speculate on some very tough times ahead across the retail sector with the possibility that some of the more highly geared members going to the wall.
Long term share based Investors and short term spread betting investors will be looking to focus on those whose underlying costs are below the norm and the biggest differential must be on the ownership of the actual retail outlets themselves. Retailers such as Marks and Spencer, Tesco and Sainsbury are all holders of not just the deeds on much of their existing floor space but also have substantial land banks besides. Internal accounting procedures obviously charge between units but the overall position is one of strength not weakness.
This was one of the major arguments against Sainsbury splitting away their property into a separate vehicle as such a move would have left the actual retail arm in a difficult situation in their never ending competition with Tesco.
P/E expectations of many high street names make little recognition of the underlying strength of one business model versus another, as in times of growth both variations work just as well with the short term leasing based model having a slight cost advantage. In times of dearth, the tables turn.
Another area to watch out for is those companies with / without high borrowing requirements. Libor rates are now very wide compared to base rates but this of course hides a great deal.
The lending rates are fixed by the bigger financial institutions who have been busily rebuilding their capital bases over the past four months. Smaller financial units have not been able to do this and their borrowing rates are, in many cases, a percent, or more, higher than the official Libor rate. Many are struggling to get funding at any price.
As Simon Denom of Capital Spreads recently said “Investors would be wise to look across the investment landscape to check out which companies have large borrowing requirements. With margins being squeezed on four fronts, higher input costs (energy, commodities etc), weakening consumer demand (average UK income actually fell last year), higher corporate tax take (this budget is expected to be less than friendly) and finally higher refunding costs mean that the prospects for 2008 returns has never looked so grim”.
Note - Spread Betting carries a high level of risk to your capital and you can lose more than your initial investment, it may not be suitable for all investors. Ensure you only speculate with money that you can afford to lose and that you fully understand the risks involved and seek independent financial advice where necessary.
'Spread Bets on Retail Sector Shares', Feature by D. Jones, last update: 16-Oct-08
Related articles:
Spread Betting Companies, 9-Feb-12,
Spread Betting Companies - a comparison of some of the leading spread betting companies covering the spread betting markets offered, individual spread betting company reviews, the services offered, where to trade, trading offers and...see: Spread Betting Companies
Why Day Trade and Spread Bet?, 2-Feb-12,
In part 1, Spread Betting and the Downside to Day Trading, we discussed some of the negatives and pitfalls of day trading and spread betting. But what about the positives? What are the benefits for the day traders who like the...see: Why Day Trade and Spread Bet?
Day Trading and Spread Betting, 7-Aug-09,
Day Trading and Spread Betting, the perfect match or the regulators nightmare? Amongst other things, regulators like the Financial Services Authority are supposed to protect the retail investor (that's you and me). However, Day Trading and Spread Betting combine to provide...see: Day Trading and Spread Betting
Spread Betting on the Housing Market, 16-Oct-08,
Spread Betting on the Housing Market: If you are considering trading UK house prices then it is worth noting that if you spread bet on house prices you can gain a simple exposure to fluctuations in ...see: Spread Betting on the Housing Market
Spread Bets on Retail Sector Shares, 16-Oct-08,
Spread Bets on Retail Sector Shares: Long term share based Investors and short term spread betting investors will be looking to focus on those whose underlying costs are below the norm and the biggest differential must be on the ownership of the...see: Spread Bets on Retail Sector Shares
Spread Trading the Banking Sector, 19-Sep-08,
Spread Trading the Banking Sector: Unfortunately if a bank lends you money it, not unreasonably, wants to make a profit on the deal. If they can only get hold of funds at 6% then they...see: Spread Trading the Banking Sector
Spread Trading Directory, 9-Feb-12,
Spread Trading Directory: A list of trading resources from spread betting companies to trading tips as well as useful external links...see: Spread Trading Directory
Looking to improve your trading results? Get free trading tips and trading analysis as well as the latest trading offers »
Trading News.
Risk Warning:
Spread Betting carries a high level of risk
to your capital and you can lose more than your initial investment,
it may not be suitable for all investors. Ensure you only
speculate with money that you can afford to lose and that you fully
understand the risks involved and seek independent financial advice where necessary.
Disclaimer:
Online-Spread-Betting.com does not endorse the information and
analysis available on this site. It is provided purely for information
purposes and is delivered as a personal view of the writer. Under no circumstances
is the information hereon to be used or considered as, an offer to sell, or a
solicitation of any offer to buy. The website content does not constitute investment
advice and neither the individual contributor nor Online-Spread-Betting.com accepts any
responsibility for any use that may be made of the content.
* Tax Free Trading:
Tax law is subject to change. It may also differ if you pay tax in a jurisdiction outside the UK.
