South Africa Stocks Worth Premium on Earnings, Citigroup Says

South African stocks are worth their premium as earnings growth outpaces other emerging markets and uncertainty around the euro region and U.S. and Chinese growth continue, Citigroup Inc. (C) said today.

Citigroup expects South African stocks to rise about 15 percent this year, unchanged from a previous forecast, Richard Schellbach, an analyst based in Johannesburg, said in a telephone interview today, underperforming the more than 20 percent return expected from the MSCI Emerging Market Index. (MXEF) The bank maintained its “overweight” recommendation on South African equities due to the “defensive” nature of the market.

“This looks to us like a fair price to pay given the market’s defensive properties,” analysts including Andrew Howell, Schellbach and Maria Gratsova wrote in a report today. “Particularly if we expect further bouts of risk aversion ahead, the South African market is worth paying a premium for in this uncertain environment.”

The MSCI South Africa Index (MXZA) trades at 10.9 times 2012 expected earnings, according to data compiled by Bloomberg, an 8 percent premium to the MSCI Emerging Market Index and above its 1 percent average over the past four years. Earnings should grow about 20 percent this year, among the highest within emerging markets, Citigroup said.

Anglo American Plc (AAL), Clicks Group Ltd. (CLS), Murray & Roberts Holdings Ltd. (MUR), Nampak Ltd. (NPK), Sasol Ltd. (SOL) and Standard Bank Group Ltd. (SBK) are among Citigroup’s favored stocks.

To contact the reporter on this story: Stephen Gunnion in Johannesburg at sgunnion@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net