The discretionary spending thematic

As many of you would know, this is a theme I have been pretty hot on for the last 6 months and where we could position our portfolios to catch this thematic.

Well before the Federal Election, we held meetings with 9 ASX listed company CEO’s and CFO’s that are 2nd Tier money lenders and came across some fascinating insights about the Australian economy and especially, the cost of living, customer credit scores and most importantly, where discretionary spending might be.

This is a note that Citi has sent out this morning which, even though I don’t entirely agree with the names they suggest to invest in, pretty much backs in our thoughts around the Australian consumer running into Christmas this year.

RETAIL: We were expecting a stronger lift in retail sales growth during FY25 than what has played out ($20bn increase in spending capacity vs $70bn prior forecast). The difference mostly reflects that savings (including offset accounts) have grown by ~$40 billion more than expected. However, we expect savings behaviour to stabilise (and potentially reverse) when rates trough (expected end 2025) - we now believe household spending capacity will grow by ~$50-90 billion in FY26e. This suggests an acceleration in retail sales growth next year (from ~3% FYTD growth to May). We make minor adjustments to COL, WES, JBH forecasts, and retain Buys on COL, JBH, HVN, SUL.

I’d be happy to take a call from you around the thematic and how to capture this and what we think is already occurring in our economy.