Supermarkets
There has been a surge in defensive assets on the basis they offer competitive yields supported by strong cash-flows. Utilities, telecoms and consumer staples shares all fall into this category but the supermarket sector has experienced a much more mixed performance. Part of the reason for this is because it is considerably more segmented, there is more competition from private labels particularly in Europe and while everyone has to eat there is a wide variety in what people are prepared to pay. On top of that online interlopers Google and Amazon represent existential threats to all but the most efficient businesses.
Following on from my piece on the return to outperformance by a number of ASEAN markets yesterday Dairy Farm International came to mind. With operations in Hong Kong, China, India, Singapore, Malaysia, Thailand and Indonesia it represents a diversified business which suffered during the region’s economic slowdown over the last few years. More recently the share has base formation completion characteristics and rallied this week to post a new recovery high.
In Europe, supermarket chains with international exposure continue to exhibit relative strength. Ahold with substantial North American operations and Casino Guichard with its Latin American franchise are outperforming.
Tesco on the other hand has shed its international operations and therefore no longer qualifies as an Autonomy. The share has at least paused in its downtrend and a sustained move above the 200-day MA would signal a return to demand dominance beyond short-term steadying.
US listed Costco continues to expand its international presence with operations in the Canada, Mexico, UK, Spain, Japan, Korea, Taiwan and Australia however the USA continues to represent 72.8% of its business. The share continues to hold a medium-term progression of higher reaction lows and a sustained move below $140 would be required to question scope for additional upside.