Executive summary
Over the last weeks, the international Equity markets have suffered unprecedented declines, rarely experienced in the past. We note aggressive corrections ranging from -12% in Asia to more than -21% in Europe. Some of these developments are economically justified. For instance, the drop in oil prices by more than -45% in 2020 will directly impact the Gulf countries which are the main oil ex-porters. In addition, the coronavirus’ repercussions on China are reflected in its PMI manufacturing index which stands at its lowest level, i.e. 35.7 in February against 50.1 in January 2020. A significant impact which would weigh on the main business partners of the Middle Empire. Also, the 3rd largest economy in the euro zone, namely Italy, is affected by the coronavirus. In more detail, the slowdown in the service sector in northern of Italy challenges the growth forecasts initially issued, i.e. 0.9% in 2020.
In this unstable global context, it would be pretentious to say that the Moroccan Equity market is completely spared. Indeed, there are several transmission channels of the deterioration of interna-tional economic conditions to Morocco. We believe that tourism, port activity, mining and IT are most exposed listed sectors.
However, we believe that extrapolating the international stock markets’ underperformance to Morocco is a misguided exercise. Indeed, the Moroccan market has its own specificities in terms of physiognomy, openness to international markets and profitability. In the end, we believe that the -9.0% correction of the MASI index during two trading sessions is at the same time exaggerated and punctual given the following points:
- (1) The unprecedented drop in international stock markets has triggered an aggressive profit-taking movement in Morocco in a context where local investors have accumulated significant performances over the past three years;
- (2) The unusual configuration of the Moroccan market favors high volatility over fairly short peri-ods. In the absence of foreign investors and individual investors, our market follows the pace of subscription/redemption of UCITS. As a reminder, the MASI index gained more than 22.0% in December 2016 in just 27 sessions. This performance was mainly justified by a large subscrip-tion alongside fund managers. In the opposite, the recent market’s correction would reflect a significant redemption in a context marked by the wait-and-see attitude of buyers;
- (3) The sustainability of a low interest rate environment in Morocco is a strong assumption in our growth scenario for Equities. Thus, the ability of listed companies to preserve dividend yields higher than those of the bond market over a MT horizon, would sooner or later encourage the return of liquidity flows toward the stock market. In our opinion, the main large-caps funda-mentals will be less affected thanks to relatively resilient domestic Demand and the pursuit of investment efforts.
A rapid contagion effect induced by international markets decline...
The main international markets experienced, during the first quarter of 2020, significant corrections due to the lack of visibility regarding the control of coronavirus spread as well as its impact on affected countries’ economy. In this context, the financial markets gave in to a general panic crisis.
OIL : A correction of more than -45% initiated by the decline in world Demand and recently accentuated by the decision of Saudi Arabia to lower its selling prices to all destinations, due to its disagreement with Russia concerning production ra-tionalization;
EQUITIES : Declines ranging from -12% for Asia to -25% for Saudi Arabia, fueled by the release of unfavorable economic figures, the revision of economic growth in countries affected by the coronavirus and the drop in oil prices;
METALS : Significant decreases of base metals reflecting the economic growth’s slowdown in China which weighs almost 40% in world Demand. By contrast, Gold is benefiting from mounting risk aversion within financial markets and surged by +10% since the beginning of 2020.
