Michael Hill/MHJ

Noting the MHJ (big jewelry company) downgrade today. A mix of things, e.g. the consumer demand patterns normalising (after 3 big years), with inflation eroding the consumers’ purchasing power (the dollar goes less far) and margins being impacted by rising costs that can’t be passed on.

From the revenue splits below, it does like the NZ arm is feeling the sales slow down most acutely. We’ve written about NZ many times on this blog, viewing it as the “canary in the coal mine”, for the “rates go up to the point where they trigger a material economic slowdown” view.

We also view NZ as a good comparable for Australia, given similarities (small open economies with significant resource/commodity exposure, high house prices, and high household debts with variable rate mortgage markets).

Fletcher Building, Downer, Kathmandu, MHJ have all downgraded, and we’d suggest a) NZ centric businesses will remain pressured and b) the consumer feeling pressured to the point of cutting back is a story that compels us to remain underweight the consumer discretionary sector.

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