Woolworths Holdings Ltd., Truworths International Ltd. and Foschini Group Ltd. surged to records after Citigroup Inc. named the South African retailers top “buys” among emerging-market consumer stocks.
Woolworths rose to the strongest closing level since October 1997, gaining 3.5 percent to 36.45 rand at the 5 p.m. close in Johannesburg, while Truworths increased for a third day, rising 1 percent to 77.55 rand. Foschini rallied 2.4 percent to 95.10 rand, the highest since August 1990.
Discretionary consumer stocks were raised to “overweight” from “neutral” at Citigroup, which expects declines in equity and commodity prices will reduce the risk of inflation and interest-rate increases, analysts including New York-based Geoffrey Davis wrote in an e-mailed report today.
The world economy will grow 3.8 percent this year and 4 percent in 2012 in purchasing power parity terms, down from 4.2 percent and 4.4 percent, Citigroup said Aug. 25. It expects growth of “around 6 percent” in emerging markets for 2011-12, it said today. UBS cut its estimate for global expansion next year to 3.3 percent from 3.8 percent and Societe Generale SA pared its forecast to 3.9 percent from 4.6 percent.
“Significant downgrades to GDP forecasts for 2011 and 2012 have centered on developed economies, rather than emerging markets,” the analysts wrote. “We would play these themes by adding weight to the consumer discretionary sector, particularly the interest-rate sensitive areas.”
Emerging-market stocks are headed for a 9.8 percent drop this month, a fourth of decreases, according to the MSCI index on concern the global economic recovery is faltering and as the U.S. was stripped of its top AAA rating by Standard & Poor’s.
“The apparent cancellation of virtually all remaining rate hikes for the rest of 2011 and most of 2012 supports our long-term bullish stance on emerging-market equities,” the analysts wrote.
Steinhoff International Holdings Ltd., Africa’s largest furniture maker, was also named as a preferred stock in the report. The stock increased for a third day, advancing 3.3 percent to 23.10 rand.