I think October is going to be a very volatile month for ASX shares. We are racing so fast towards the fiscal cliff that all of us can see it coming now. Specifically, we will see JobSeeker and JobKeeper payments reduced on 1 October .
Also, banks will start to renegotiate loans and call in bad debts. Meanwhile, the government's Commercial Tenancy Code of Conduct has not been extended in Queensland or New South Wales at this stage. Outside of our own domestic economy, some companies are also at the mercy of large-scale trends and patterns that have been working against them all year.
Here are 3 ASX shares that I would avoid buying between now and the end of October at least.
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Shopping centre REITs
I really feel sorry for the two giant shopping centre real estate investment trusts (REITs). Scentre Group (ASX: SCG), the owner of the Westfield centres, and Vicinity Centres (ASX: VCX) are well managed ASX shares with solid balance sheets. Unfortunately, they have carried more than their fair share of the burden of the pandemic restrictions. The commercial tenancy code prohibits them from evicting tenants who have been unable to pay rent. At the same time, they must provide either rent deferment or cancellation of between 50% and 100%.
Both of these REITs have dutifully complied, and have in fact gone above and beyond what has been asked of them. It is bad enough that these companies face the extended lockdown restrictions in Victoria. However, Western Australia, South Australia and Victoria have also extended the tenancy code of conduct for 6 months or longer.
ASX shares in LNG
The oil price is under sustained pressure and struggling to remain above US$40 per barrel. Demand is still very low and will be until lockdowns are over and full scale international travel recommences. The world still has a glut of oil and Saudi Arabia has recently moved to sell at below the benchmark price.
In the LNG space, PetroChina is forcing suppliers to reduce prices in the wake of years of large-scale losses. Many ASX shares in LNG are going to be struggling with this for several years to come. However, I believe Oil Search Limited (ASX: OSH) is the most exposed.
A producer of both oil and gas, the company has seen a sharp decline in realised prices for its products. It is working hard to reposition itself and has slashed production costs. Nonetheless, the company is faced with a number of difficult issues for new project approvals, and has slashed growth capital.
Fast fashion
Delloite Access Economics has modelled the reduction in the JobSeeker allowance and found it could lead to an additional 145,000 people unemployed. The key takeaway here is that consumers will have less money, so will spend less, and the resulting contraction will cause further unemployment. For me, this indicates bad times ahead for discretionary retail. Not only companies like Officeworks in the Wesfarmers Ltd (ASX: WES) group, but also retailers in the fashion sector.
As people try to cut discretionary spending, I think sales from companies like Lovisa Holdings Ltd (ASX: LOV) will be hardest hit. Moreover, I think prestige retailers such as jeweller Michael Hill International Ltd (ASX: MHJ) will see a sharp downturn in sales volumes. Personally, I like both these companies, but the lack of discretionary income will mean more spent on food and less spent on fun.
