Macroeconomic stability, a thriving private sector, and a pivotal location bridging Europe and Africa have helped cement Morocco’s position as a major continental financial hub. By African standards, the kingdom’s capital markets are relatively deep, liquid and sophisticated. Recent years have seen challenges arise on all of these fronts, however. Against a backdrop of subdued economic activity, the market saw scarce new equity issues; falling liquidity; and delays to long-planned innovations, such as its small and medium-sized enterprises (SME) window. Although efforts to increase depth and liquidity have been hampered by weak economic growth, the 2018-19 period saw the implementation of a number of regulatory developments, which are set to bear fruit in terms of increased activity in alternative financial products and markets in the years ahead.
Antecedents of the Casablanca Stock Exchange (CSE) date from 1929, and underwent successive waves of major reforms to modernise and formalise the market in 1948, 1967 and 1993, when listed companies were required to publish financial accounts. This led to increased transparency, with 10 companies ejected from the stock exchange upon failure to comply. Further regulatory reforms, improvements to governance and infrastructure investments fostered significant growth in the early years of the 20th century. The CSE joined the World Federation of Exchanges in 2010 and became a founding member of the Association of French-speaking African Stock Exchanges in 2011.
Structure & Oversight
The CSE comprises a central market and a block market. The former is the main exchange for the execution of regular-sized buy and sell orders, and the latter is for clearing larger orders, such as placements, with institutional investors. There is also a bond market with sovereign and corporate issues, and an equity market, which saw the establishment of an SME window in late 2019.
The Moroccan Capital Markets Authority (Autorité Marocaine du Marché des Capitaux, AMMC) is the main regulatory body overseeing the stock market, listed companies and fund managers. Its predecessor, the Council for the Code of Ethics in Securities (Conseil Déontologique des Valeurs Mobilières, CDVM) was established in 1993, during the time of capital market reforms. The council’s powers were strengthened in 2004, notably extending to cover all capital market players, boosting its investigative and sanctioning capacities, and granting it the right to issue directives to all market players under its jurisdiction. Based on legislation promulgated in 2013, the CDVM completed its transition to become the AMMC in 2016, when its current president was nominated by the king. The AMMC is considered to be a more independent body than its predecessor, given its relatively autonomous capacity to investigate and sanction in the case of malpractice.
“The objective of the reforms is to ensure that financial markets make a bigger contribution to economic development,” Nasser Seddiqi, director of financial operations and markets at the AMMC, told OBG. “To do this, we are trying to diversify the offer of financial products, as well as to boost investor confidence by increasing transparency and improving market infrastructure. In addition, we are increasingly engaging and sharing knowledge with other African market regulators in an effort to foster the development and integration of our regional markets.” The AMMC also plays a role in supporting market players through professional licensing and financial literacy programmes.
Established in 1995, the Moroccan Association of Asset Management Firms and Investment Funds (Association des Sociétés de Gestion et Fonds d’ Investissement Marocains, ASFIM) is another important player in the sector, bringing together 17 fund managers and three expert members. As well as representing its members, the ASFIM engages with the authorities on regulatory reform.
Law No. 19-14, enacted by Royal Decree No. 1-16-151 in August 2016, is the principal legislation governing Morocco’s stock exchange, brokerage firms and investment advisers. A key innovation of this law was that it permitted the authorities to develop new regulations, covering new capital markets and financial products, without having to amend the legislation. This laid the ground for many of the recent and ongoing innovations and alternative markets. The AMMC also periodically issues circulars and guidance to market players on specific topics. For example, in June 2019 the regulator authorised fund managers to hold up to 20% of a security that has a weighting of more than 15% of market capitalisation.
There are two widely watched indices tracking the CSE: the Moroccan All-Share Index (MASI), including all 75 listed equities as of the end of the third quarter of 2019; and the Moroccan Most Active Shares Index, with 62 of the most actively traded equities. Meanwhile, 10 equities selected on their performance against environmental, social and governance (ESG) criteria and indicators make up the Casablanca ESG 10 Index. This group comprised approximately two-thirds of the market capitalisation of the MASI in late 2019. As the fortunes of the CSE declined from 2008 onwards, stock market index provider MSCI reclassified the market status from emerging to frontier in mid-2013.
The MASI reached an all-time high of 14,684 in February 2008, before falling by 43% to reach a trough in mid-2013 and recovering by some 56% to reach a cyclical peak in February 2018. A combination of weakness in global stock markets in late 2018 and the impact of profit-taking and a Moroccan consumer boycott of some of the leading companies on the stock exchange earlier that year saw the MASI decline by 8.3% over the course of 2018. Nevertheless, it outperformed other market indices, including the MSCI Emerging Markets Index, which declined by 16.6% that year. “With price/earnings ratios around 18:1, some might say that valuations are stretched compared to regional peers,” Mehdi Chakir, equity research analyst at CFG Bank, told OBG. “However, one must understand that the cost of capital is much lower in Morocco than in Tunisia, for example, which justifies higher valuations. In some respects, Moroccan equities trade more like European than MENA equivalents.” Elaborating on the market dynamic, Chakir added that “local institutional investors are a captive audience. While they are permitted to invest up to 10% of their portfolios in foreign equities, this is closer to 1% in practice, largely due to capital controls”.
Over the first three quarters of 2019 the MASI was relatively stable, ending October at 11,484.30, up marginally by 1.1% from 11,364.31 at end-2018, after having traded within a relatively narrow band over the course of the year.
After reaching a high-water mark of Dh163.1bn ($17bn) in 2007, trading volumes dropped by two-thirds in 2009 following the global financial crisis. Liquidity has since been relatively stagnant, going into reverse since posting a modest recovery of Dh63.5bn ($6.6bn) in 2017. In the year to end-October 2019 there were 302,976 orders, of which 217,884, or 72%, were executed for a total traded volume of Dh46.1bn ($4.8bn). This represents a 9.58% year-on-year decline in trading volume. “Free floats on the equity market average about 15%, while the average liquidity ratio stands at around 9%,” Chakir told OBG. “Short selling was not permitted until 2018, and it is still quite limited.”
Liquidity is a particular challenge in the bond market, where many local institutional investors adopt a buy-and-hold strategy rather than actively trading debt securities. Since 2010, when the number of bond market transactions reached 207, valued at a total of Dh9.4bn ($979.3m), each subsequent year has seen a decline on both metrics, a trend that was maintained throughout 2019. Between 2016 and 2018, for example, total traded volume in the bond market fell by more than 60%, from Dh4.5bn ($468.8m) to Dh1.8bn ($187.5m). The first three quarters of 2019 saw further decline, to 10 transactions worth a total of Dh494m ($51.5m).
Trading in shares is far more common, and the decline on this metric has been less pronounced. Between 2016 and 2018 the volume of shares traded fell by 25%, from Dh68.2bn ($7.1bn) to Dh50.9bn ($5.3bn), with the bulk of the decline taking place in 2018. Similar to trading on the bond market, there was further decline in the volume of shares traded in the first three quarters of 2019.
At end-October 2019 total stock market capitalisation amounted to Dh590.5bn ($61.5bn), up from Dh582bn ($60.6bn) at end-2018, making it the second-largest stock market in Africa by this measure. Market capitalisation is highly concentrated, with the top-three firms accounting for nearly half of the total. Formerly state-owned Maroc Telecom accounted for 21.4% alone, followed by Attijariwafa Bank with 16.7% and Banque Populaire with 9.1%. Banking is the dominant sector, with six listed banks accounting for 35.5% of market capitalisation, followed by telecommunications (21.4%), construction (11.2%) and agri-food (6%). On February 4, 2020 market capitalisation reached Dh632.2bn ($65.9bn).
The government has historically used the privatisation of states assets both to raise funds and to support the development of local capital markets. This dynamic was particularly prevalent in the early years of the century, headlined by the €800m initial public offering (IPO) of Maroc Telecom in 2004. Coming at a time of higher-than-average economic growth, this kicked off a surge in market trading activity, which came to a halt with the onset of the global financial crisis in 2007-08. In 2019 Maroc Telecom loomed large as the largest listed company on the market by far. June 2019 the government successfully offered 6% of the company’s capital to local institutional players and sold a further 2% on the open market to raise a total of Dh8.9bn ($927.2m). This secondary offering gave some positive impetus to the market as a whole, both in terms of liquidity and valuations. The government retains a 22% stake in the telecoms firm, suggesting scope for further such sales in coming years. The surge in new listings seen in the early part of the century, however, has dried up over the past decade against a backdrop of slower economic growth and limited further privatisations. Though there was one IPO in 2016 and two during 2018, there were none in 2017 and 2019. Stakes in stateowned port operator Marsa Maroc were floated in an oversubscribed deal worth Dh1.9bn ($197.9m) in July 2016. In May 2018 Immorente Invest, a local private real estate company, entered the IPO market with a Dh400m ($41.7m) deal in May 2018, while Mutandis, a privately owned producer of fast-moving consumer goods, raised a further Dh400m ($41.7m) in December 2018 in the country’s most recent IPO.
Market players anticipate the possibility of several privatisations during 2020 as the authorities flagged their intention to raise Dh6bn ($625.1m) in this manner. Some market players see the possibility of small private IPOs during 2020-21 as well. Despite speculation surrounding the possible flotation of local chemicals company OCP Group for a number of years, however, as of early 2020 there were no major corporate listings in the pipeline.
In a long-awaited move, the CSE is opening an SME window to attract smaller businesses from Morocco and West Africa to list on the market. “We expect the first listings on the alternative market dedicated to SMEs to come in 2020,” Seddiqi told OBG. “The idea is to strike a balance In between easing the regulatory and reporting burden on smaller businesses to encourage them to go public, and ensuring adequate investor protection.”
In order to prepare a cohort of businesses to join the market, the CSE has been running the ELITE accelerator programme since 2016. It has hosted about 80 firms from Morocco and 30 from West Africa, sharing with them best practices in governance, reporting, transparency and investor relations.
“Capital markets should act as a lever for SMEs looking to grow and expand their operations,” Younes Benboujida, general manager at Eqdom, a local consumer lending company, told OBG. “Therefore, it is important to offer flexible conditions that make it easier for companies to access finance.”
Three years after the promulgation of Law No. 70-14 permitting real estate investment trusts – known locally as organismes de placement regulation was issued in mid-2019. At the same time, the AMMC issued a guide setting out how they would function. “The first OPCI management company has already been approved, and the second one should get the green light in early 2020,” Seddiqi told OBG. “We expect their operations to begin imminently, and foresee great enthusiasm and appetite for this new market segment, both in terms of offerings and demands.” Given local investors’ preference for real estate as an asset class, market players note a large appetite for such investments, suggesting they are set to become an important fixture of Morocco’s capital market landscape from 2020 onwards. The minister of finance, for example, estimates that OPCIs could mobilise some Dh200bn ($20.8bn) in commercial office developments alone.
Unlike many emerging markets, Morocco’s debt market is significantly shallower and less liquid than its equity market. Since 2010 the total amount of bonds outstanding on the market has followed a similar trajectory, falling from Dh14.7bn ($1.5bn) in 2010 to Dh5.3bn ($552.2m) at the end of the third quarter of 2019, at which point there were 39 bonds listed, with maturities ranging from seven to 15 years. These are dominated by large banks and other corporates. There is also a significant overthe-counter (OTC) market for both corporate and sovereign debt instruments. In November 2019 the authorities issued a €1bn international bond with a maturity of 12 years, and demand for the bond reached €5.3bn from 285 investors. The government’s last issuance was a €1bn eurobond in 2014.
With the introduction of participative banking (see Banking chapter) and takaful, or Islamic insurance (see Insurance chapter), there is an increased need for similar sharia-compliant investment vehicles. Thus far, there has been only one sukuk, or Islamic bond, issued in Morocco: a Dh1bn ($104.2m) issue on the OTC market in October 2018. Though it was judged a success by the authorities, with the issue 3.6 times oversubscribed, there have been no subsequent announcements of sukuk issues.
As climate finance becomes more mainstream, the issue of green bonds has been on the increase globally. Morocco is among the first wave of African issuers, launching its first green bond in November 2016. The Dh170m ($17.7bn) deal was a joint effort by BMCE Bank and Masen, the Moroccan agency for sustainable energy. This was followed by a Dh355m ($37m) issue by Casablanca Finance City in September 2018, and by 2019 there were five green bond issues worth a total Dh4bn ($416.7m), all of which were OTC deals rather than public listings. In a move to help encourage further listings in the market, in July 2018 the AMMC issued guidance on green bonds for investors and issuers.
With economic activity expected to remain subdued, market players are not expecting a surge in trading activity or asset prices. However, low interest rates and a return to positive earnings growth after a challenging year in 2018 should support continued modest improvement in equity valuations through 2020, particularly given the positive performance of global stock markets in late 2019.
Regulatory changes in the insurance sector are expected to see local insurers reduce their exposure to Moroccan equities over the medium term, and the authorities intend to phase in the changes so as to avoid market dislocation. The government’s ongoing financing needs should ensure a steady supply of sovereign bond issues, and its privatisation plans may see a small number of IPOs and secondary offerings on the equity market. However, these are not expected to be significant game-changers. Rather, market dynamism is more likely to be driven by alternative financial products. The long-awaited SME window of the exchange, the first operations of the new OPCIs, potential further issues of sukuk and the development of green finance should loom large in 2020. Over the longer term the introduction of a derivatives market and further moves towards a freer floating currency will be important in developing the full spectrum of Morocco’s markets, helping cement the country as a leading African financial centre.
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