6th Dec 2022 15:48
(Alliance News) - Housebuilder Persimmon PLC, retailer Next PLC and Rolex watch seller Watches of Switzerland Group PLC are among RBC Brewin Dolphin's stocks to watch next year.
The wealth manager also believes it will be a good year for Chinese equities, while a wider Asia-focused Morgan Stanley fund could be one "for the high-octane investor".
"The last 12 months have been tough for investors, with a series of events affecting markets – not least the conflict in Ukraine, high inflation, and rising interest rates. We expect 2023 to offer some respite, with inflation easing and interest rates peaking," RBC Brewin analyst Rob Burgeman commented.
Burgeman said Persimmon is a stock to look at, and not just for its dividend either.
Persimmon shares have fallen 54% over the past 12 months and were down 1.2% at 1,261.50 pence each in London on Tuesday afternoon.
However, Persimmon is the best "blue chip option" in housebuilding.
"Some sectors in the UK market have had a really bad six to nine months – but they have strong businesses within them that are not going to go bust. Housebuilding is one of them," Burgeman said.
"Despite the recent change in dividend policy it is likely to yield at least 6%, assuming the share price remains around the same. But don't bank on this for the dividend alone. The UK still has a structural shortage of houses and there are still plenty of buyers out there – they just can't get themselves a mortgage. I wouldn't necessarily rush out and buy it today, but for the longer term there are worse things to own."
Interest rate hike worries and housing market slowdown fears have hit the stock.
In November, Persimmon revealed sales were slowing. In the four months and a week from July 1 to November 7, the firm reported forward sales reserved beyond the current year of GBP770 million, down from GBP1.15 billion a year prior.
In the six weeks to November 7, the average net private weekly sales rate per outlet fell to 0.48.
It is not just housebuilders which have succumbed to consumer confidence fears. High street stalwart Next has slid 28% over the past 12 months. The stock was up 0.3% at 5,884.00p each in London on Tuesday afternoon.
Burgeman added: "It's difficult to be too optimistic about retailers in the UK at the moment, given the macro-economic backdrop. But, like housebuilding, there are some stand-out retailers that will weather this tough period. Next is one of those names."
The RBC Brewin analyst noted Next has dug into its coffers to rescue struggling brands recently, including sofa seller Made.com Group PLC and country lifestyle retailer Joules Group PLC.
"Its online offering has never had so much choice of third party brands and this will place Next well for the upturn to come," the analyst added.
"In this changing economic backdrop, some funds and individual stocks look well placed to benefit. But remember that it is as important as it ever has been to own a diversified and balanced portfolio of risk-adjusted assets, and taking financial advice is a great way of ensuring you have investment geared towards your goals."
Recent market updates from Next have been mixed. The clothing and homewares retailer lowered guidance in September, but returned to form in November by lifting its outlook following the uncharacteristic forecast cut.
Elsewhere in the consumer space, Watches of Switzerland is another one to watch, according to RBC Brewin's Burgeman.
So far, the watch seller has resiliently weathered a cost of living crisis.
"When asked about the impact of recession on its customer base, the CEO of a doorstep lender once quipped that it was 'always a recession' for them. The opposite is often true for those at the other end of the scale. Watches of Switzerland is a purveyor of luxury watch brands, for which there is always demand from well-heeled clientele. The brands control supply so closely that there is almost always a queue of customers at any given time, however things fare," Burgeman added.
Away from London-listings, the RBC Brewin analyst picked out Allianz China A Shares and Morgan Stanley Asia Opportunity as funds to back in 2023.
Authorities in China's financial hub of Shanghai will from Monday scrap some testing requirements in the country's latest relaxing of its strict zero-Covid policy following nationwide protests unseen in decades.
Multiple cities have started to roll back some restrictions after public resentment at harsh and prolonged containment measures reached a boiling point last weekend, when spontaneous protests broke out in multiple Chinese cities.
"China should gradually begin to re-open in 2023. That will be good news for many of the companies held in the Allianz China A shares fund, with the majority focussed on the country's domestic economy. They also tend not to suffer from the same degree of political interference as their larger cap, more international peers such as Alibaba and Tencent. While the current upheaval may cast a shadow over the short term, this fund is one for the medium-term radar if the situation in China settles," Burgeman added.
"For Asia more widely, Morgan Stanley Asia Opportunity fund may be an option for the high-octane investor. During the last five years, this fund was up significantly compared to its index – by a factor of around four. But, it was also heavily affected by the sell-off of growth stocks during 2022. If you want everything that Asia offers in spades and in every direction, this could be the fund for you. But, as the last 12 months has demonstrated, brace for impact – it's unlikely to be an easy ride."
By Eric Cunha, Alliance News news editor
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