Bumpy road ahead for Morocco

Markets Preview: Morocco's stock-market will be in focus this week, with investors eyeing diplomatic talks between King Mohamed VI and Arabian Gulf member states ahead of a planned $1 billion debt issue.

Morocco's CFG 25 Index has lost 17.5 per cent this year as institutional funds have reduced their holdings. Eve Coulon / Bloomberg News

Morocco's stockmarket will be in focus this week, with investors eyeing diplomatic talks between the king and Arabian Gulf member states ahead of a planned US$1 billion (Dh3.67bn) debt issue.

The CFG 25 Index has lost 17.5 per cent this year as institutional funds have reduced their holdings. Several companies have warned that their second-half earnings may underperform expectations as Europe's financial crisis continues to deepen.

Liquid stocks such as Auto Nejma, based in Casablanca, and computer technology firm IB Maroc fell 5.9 per cent and 11.6 per cent respectively on Wednesday.

"The market is in a free fall mode," said Sebastien Henin, a portfolio manager at The National Investor, an investment company in Abu Dhabi. "I think we could have bad sessions in coming days. When you move from positive growth in terms of net earnings to negative income, it's a very poor signal to the financial community and people just want to reduce exposure to the equity market."

Morocco will face a budget deficit of about 5 per cent of GDP this year, according to estimates by the IMF.

"The picture is not appealing due to the fact that they are suffering from many angles due to what is happening from Europe," Mr Henin added. "It's difficult to export products, at the same time they rely a lot on European tourists who are currently under pressure, all the while receiving less remittances due to the fact that the overwhelming majority of Moroccans abroad live in Europe."

King Mohamed VI began his tour around the Arabian Gulf ahead of a $1bn dollar-denominated bond set to float next month. He is also expected to lobby for direct foreign investments in the country.

The official tour comes after Gulf member states signed an agreement to provide $5bn in funding for development projects last year.

Saudi Arabia's stock market has started to recover after pricing in weak earnings from petrochemical producers and banks. And since many of these shares remain recommended by analysts, they may drive the market higher in coming sessions.

The past month has been a poor one for Saudi stock investors, with the main index losing about 7 per cent.

Disappointing third-quarter bank earnings were one blow. Al Rajhi Bank, Saudi Arabia's largest listed bank, reported last week that quarterly net profit fell 3.5 per cent from a year earlier to 1.87bn riyals ($498 million).

That was below 2.11bn riyals (Dh2.06bn) predicted by a Reuters analyst poll. Riyad Bank, Saudi British Bank and Banque Saudi Fransi, the kingdom's third, fourth and fifth largest lenders, also missed expectations.

Petrochemical firms, heavily weighted in the index, suffered weak earnings.

Saudi Basic Industries Corp (Sabic), the world's biggest petrochemicals group by market value, posted a 23 per cent slump in third-quarter net profit on Wednesday.

But analysts said the gloom was not complete in either sector. Sabic, hit by soft prices for its products because of the struggling global economy, managed to beat analysts' forecasts slightly.

And the banks, which said higher expenses weighed on their profits, appear to have been hit primarily by loan-loss provisions. One banking industry source said Saudi regulators had encouraged banks to take sizeable provisions as a precaution with the year-end approaching.

Since the Saudi economy remains strong, with growth running at about 4 or 5 per cent, some of these provisions may prove unnecessary and the fourth quarter is unlikely to be as expensive, analysts said.

"If you take away the provisions, the numbers are strong. Q4 for banks is expected to be better, especially since their stock prices have hit lows," said Asim Bukhtiar, the head of research at Riyad Capital.

* with Reuters