A less than two months from the end of the year, the equity market recorded one of the worst performances in its history (if not the worst), with no less than 150 billion dirhams of market capitalization gone up in smoke. Spectacular rise in inflation, war in Ukraine, energy crisis, rise in interest rates and penalizing provisions of the PLF 2023…, the bad news has been piling up since the first months of the year. The effect on the stock market was not long in coming, since the national index lost, at the time of writing these lines, 22% and confirmed the status of Bear Market validated last summer. But it is since the monetary tightening that the decline has really accelerated.
Bank Al-Maghrib’s harsher tone visibly took investors by surprise, who found it difficult to integrate the paradigm shift on interest rates. “The stock market seems to have reacted badly to recent announcements, in particular the rise in the key interest rate, which has accelerated the shift in the arbitration in favor of rates, which has already begun, with the various tax measures expected to put a strain on the earning capacity of companies as a whole. listed companies and the insufficient component of the economic recovery in the PLF 2023”, explained BMCE Capital Global Research in its latest ‘Strategy’ note.
Confidence in sharp decline
In a tense international context, marked by the continuation of inflationary tensions and the downward revision of the outlook for economic growth, we are witnessing a significant deterioration in investor confidence in the equity market, indicated for its part Attijari Global Research in a new publication of its confidence index. In more detail, the AGR Confidence Index stands at 32.5 pts at the end of October 2022, down -12.3 pts compared to the previous edition. “This is the lowest level observed since April 2013. In this context, the AGR confidence index is closer to the low range of the wait-and-see phase,” said the research office. Remember here that a lower level of confidence exists: This is “Pessimism” when the index drops below level 25.
When analyzing the results by investor category, we observe a general decline in the level of confidence in equities. But it is the index of benchmark players that shows the biggest drop, from -19.8 pts to 28.1 pts. The index of foreign investors deteriorated by -13.7 pts to 31.3 pts, that of individual investors posted a drop of -12.5 pts to 33.4 pts and, finally, the index of institutional investors & local UCITS recorded a decline of -8.7 pts to 34.4 pts. To the question “What are the outlook for the Masi over the next three months?”, 32% of those interviewed answered “strongly bearish” once morest only 3% last April. Even for an investment with a horizon of more than 5 years, they are only 24% willing to invest part of their cash in shares once morest 60% in April.
The Treasury fuels the fall in stocks
At the end of last week, the Treasury announced to intermediaries its fundraising strategy for the rest of 2022. Objectives: complete its budget to meet large expenditures. Amount at stake: 70 billion DH, including no less than 30 billion in financing from the domestic market. These factors had an immediate impact on the equity market, which priced in a faster-than-expected rise in bond rates. The Masi lost more than 2% on the day at the close. These elements also complicate the task of equity managers who, to save the day, will have no choice but to liquidate their shares by the end of the year. Ultimately, we remain in a configuration where investors hope that the stock market low point has passed, despite the vagueness that still reigns over the economic outlook and also over the profits of listed companies in the second half, which will no doubt be impacted by inflation.
The value theme no longer carries weight
This year’s stock market crisis has shown that yield stocks – those valued for their ability to pay comfortable and recurring dividends – are no longer an effective bulwark once morest falling prices. They certainly fell less than the most cyclical stocks on the stock exchange, but they suffered from fears of a decline in earnings which might compromise their ability to maintain their dividend.
