Australian retailers attract global interest By Scott Murdoch

 The major Australian retail stocks are beginning to emerge on the radar of international investors, despite slow consumer spending.

                                                                                                             Photo: The Australian

Sally Bertouch of Deutsche Bank

 Deutsche Bank's Sally Bertouch, a sales adviser on the Australian equities desk in New York, said investors were keen to diversify their Australian exposure and build on their ownership of major mining companies.

 Ms Bertouch said investors, mainly large institutional fund managers, were confident of a retail rebound in Australia, despite ongoing warnings from domestic players that the industry is flatlining.

 The funds are forecasting the retail turnaround will be driven mainly by strong economic growth and a labour market approaching full employment.

 "We are starting to see some interest from investors confused about the Australian consumer. It's quite interesting," said Ms Bertouch, an expatriate Australian.

 "A lot of the consumer stocks are being supported. A lot of the offshore investors are looking at the strength that there is in the economy. Unemployment is low.

 "The rest of us are on top of that and what looks like a two-speed economy . . . but it's the discretionary retail stocks that a lot of my clients are now asking me about."

 The retail sector in Australia has been hit by a persistent weakness in consumer spending that emerged in the past year.

 Retail sales data for February showed a surprise 0.5 per cent increase, but economists expect consumers to remain reluctant to spend.

 The high savings rate — which has hit 10 per cent of GDP — is being blamed for the flat spending and consumption rates.

 The saving, rather than spending, trend has hit Australia's major retailers, which have reported weaker earnings performances over the past six months.

 Harvey Norman was the most recent victim, with its March results, for the past nine months, down 3.5 per cent when new store openings were removed from calculations.

 The chain's department store rivals, Myer and David Jones, have been bruised in the consumer downturn, with sales and earnings weak.

 Ms Bertouch said resources remained in favour with offshore funds, especially compared with the domestic banks.

 "Australian banks are considered expensive, and we think they are expensive to a degree," she said.

 "But you can sleep at night owning one, compared with some of their overseas counterparts."

 Ms Bertouch said international investors still believed holding Australian stocks gave them exposure to the Chinese growth story.

 Deutsche Bank has upgraded its China economic growth projections and is expecting a re-rating of the country's main equities markets.

©theaustralian.com.au