Asian markets still worried about Europe

Asian markets traded lower today as investors remain cautious toward the year end. The Shanghai Composite Index lost about 1% while Hong Kong’s Hang Seng Index was also down by 0.5% by afternoon trade.

In Australia, the ASX 200 Index shed over 1% after retail stocks were sold off following a profit warning from Kathmandu, a retailer of outdoor apparel.

The problem with outperforming market expectations is the need to continue delivering year after year. In some respects, Kathmandu is a victim of its own success.

Last year’s performance was outstanding and caught the attention of many investors looking for a different type of retail exposure. Unfortunately this year, this performance cannot be replicated but that’s not to say things are problematic at the group.

Comparable sales are still positive, 2.8% in fact for the 20 weeks to the 18th of December. Other retailers like JB Hi-Fi and David Jones are seeing their comparable sales decline.

Kathmandu says earnings in the first half of the year are expected to fall on last year but the second half is more important and there is still the possibility of a gradual recovery.

The market was expecting EBITDA to rise by around $10m this year, one could argue this was way too optimistic in light of the very strong performance last year and current retail environment.

The Australian dollar remains above parity with the US dollar, but only just.

We are also seeing quite a low volume at this stage with most traders and investors getting ready for the Christmas break.

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