Shares of mass-market retailers will fall as profit margins tighten and consumers cut back on spending next year, according to Plurimi Wealth’s chief investment officer. Patrick Armstrong told CNBC’s Pro Talks last week that he was betting against Japanese e-retailer Rakuten, multinational clothing company H&M and Canadian e-commerce platform Shopify with how to short their stocks. Selling “short” of stock means borrowing the stock through a brokerage to sell it immediately with a plan to buy it back when the price is lower. Such investors, also known as short sellers, pocket the difference in the form of profits. Armstrong said that while consumers have shown resilience so far, rising interest rates and a lack of meaningful real wage growth will mean spending cuts starting next year. In such an environment, mass-market retailers that benefit from discretionary spending will see their revenue decline. Armstrong, whose Plurimi AI Global Equity strategy beat the MSCI World Index to an 8.2% gain, said: “Consumers will be squeezed by utility bills, higher mortgage costs. , gasoline prices are higher and there will be a squeeze in profits.” in October. “The ‘dream stock’ that many e-commerce stocks used to be, I don’t think they have a clear path to profitability and I don’t think they will generate good returns for investors from here.” Shares of retailers like Shopify surged more than 350% between April 2020 and November last year after central banks and governments around the world began financing programs and trillions of dollars in currency to keep their economies alive during the Covid-19 pandemic. However, as interest rates have begun to rise this year to combat soaring inflation, investors have begun favoring companies with steady earnings, strong balance sheets and low debt. This means that companies like Rakuten and H&M have lost almost half their value this year. Despite being a growth tech stock, analysts’ median price target for Shopify is just 7.4% above the current stock price, according to FactSet data. Armstrong’s concerns. Although valuations have been compressed several times, retailers have largely avoided an earnings downgrade. Armstrong believes that corporate revenue will decline in the first half of 2023. Armstrong also said that the challenges facing mass-market retailers are very different from those of operating in the remote sector. slag, which can hardly be constrained in demand. The investment director revealed that he would rather invest in LVMH and Hermes in that area. “Companies that are generating income, positive cash flow, are the ones that will be rewarded next year,” he said. While investors are divided on the health of American consumers, European shoppers are mostly expected to cut back on their spending habits next year. Gabriella Dickens, Senior UK Economist at Pantheon Macroeconomics, said: “We expect the recession to be exacerbated early next year, as real disposable incomes of households suffer hit hard when the government withdrew substantial energy bill support in April.” Elsewhere in Europe, economists also predict a recession in the first half of next year will hit discretionary spending. “We forecast negative economic growth in the Euro Area from Q4 2022 to Q2 2023,” said analysts led by Maximilian Uleer, head of European equity at Deutsche Bank Research, said. “As disposable income declines coupled with high inflation and limited wage growth, we expect consumer demand to decline in the coming months.”