Renaissance Capital, an investment bank focused on emerging markets, favors Morocco from an equity strategy perspective, particularly against more challenged markets elsewhere in Africa for Africa funds.

Daniel Salter, Global Equity Strategist at Renaissance Capital, rates Morocco as an overweight, saying that valuations admittedly have come down, but “you still pay 14.7x 12M fwd PER for MSCI Morocco vs 9.5x for MSCI Frontier, representing a 50% premium”.

“Admittedly, bond yields in Morocco are very low: 10-year MAD bond yields are about 3.4%, so a premium is fully justified vs SSA and Egypt. This low bond yield might also tempt local investors to add positions in the equity market that offer a dividend yield of 4-5%,” he said.

Salter added that on liquidity, the story’s not pretty.

“There was a burst of liquidity in December 2015, but that seems to have subsided and over the last month, the market is trading just around $7.5m a day (1M ADTV) with only two stocks trading over a million dollars a day – a real estate developer, Douja Promotion and telecoms operator, Maroc Telecom.”

“Even market favorite, Bank Attijariwafa (not covered) has traded only $0.9m a day over the past month,” he added.

Charles Robertson, Renaissance Capital’s Global Chief Economist and head of the Firm’s macro-strategy unit, considers Morocco to be “the best macro picture among the largest African equity markets”.

“Our data imply Morocco is the second-biggest underweight (after Kuwait) for frontier investors. While we are not convinced that either credit or GDP growth is about to surge, we do like an African currency that is fairly valued and protected by high FX reserves,” he said.

Robertson added that the only ‘problem’ is that Morocco is not growing as fast as local officials would like.
The prime minister targeted 7% growth at the last election, but in 2015 the IMF estimates it was 4.7%.

“Stripping out extremely volatile agriculture, GDP has risen by just 3% annually since 2013, which we think is pretty good relative to many in EEMEA and given weakness in Europe (62% of exports in 2014),” he said.

“Officials believe better than 5% should be the target. Morocco, a little like Romania or Pakistan, is seeing little demand for new loans (credit growth was 1-2% in 2015) after a pre-global financial crisis (GFC) lending boom. We believe an interest rate cut in March, or further central bank (CB) support for lending growth (similar to Hungary’s support for SMEs, or the UK’s CB support for lending) is likely,” he added.

Robertson noted that the impressive economic backdrop makes this an ideal year for Morocco to loosen the currency peg (60% euro, 40% US dollar) according to the IMF.

“The current account deficit was 1% of GDP in 2015. The currency is fairly valued according to our REER model and inflation is low. The lack of a significant interest rate premium over the ECB or Fed means even with wider bands – we would guess 3% bands around a central parity rate as the first move – we see no obvious reason for the currency to move much in any direction,” he said.