Oxford Business Group highlights promising future of Casablanca Stock Exchange

According to OBG, the re-classification of Morocco's Casablanca Stock Exchange (CSE) from emerging to frontier market has the potential to boost capital flows to the bourse, which has faced an increasingly difficult exogenous environment in recent years. Authorities are also implementing reforms that stand to strengthen the exchange in the medium term.

 

Far from a setback, Morocco's move to the frontier market index in November 2013 may help provide the uptick in investor interest that CSE authorities have been working for. According to a recent Reuters report, Morocco is expected to have a 6.7 pc weight in the frontier markets index, providing greater exposure to investors, says OBG. 

 

Furthermore, state and bourse authorities are accelerating efforts to introduce new measures meant to deepen the bourse and improve liquidity. These include a new law permitting short-selling, which was expected in the first half of 2013, although no drafts have been introduced, adds OBG.

 

In addition, a project to establish a derivatives market on the CSE has been in the works for several years. This has become a priority as the government works to reinvigorate the bourse. The lack of market liquidity will likely be a restraint to the development of any new platforms in the near term, but once finalized, it stands to open up a number of new opportunities for investment.

 

Additional listings could also help to deepen market, and the CSE is taking steps to encourage new companies to file initial public offerings (IPOs). Last year, bourse officials reported meeting with more than 170 businesses, with some showing interest in IPOs. A number of incentives have been offered, including a CSE subsidy of up to Dh 500,000 ( 44,780) for expenses related to IPOs such as legal and financial consulting, which stand to encourage new offerings when the market strengthens.

 

These proposed reforms, says OBG, have the potential to boost activity in the medium term, and they come at an important time. The CSE had eased by more than 10 pc year-to-date as of late August, with the Morocco All Shares Index (MASI), a value-weighted index made up of all 75 listed companies, at 10.05 pc below its level on January 1 to reach 8419.04. The MADEX, an index representing the most liquid continually listed stocks, was 10.29 pc lower at 6830.53.

 

According to OBG, the bourse continues to be affected by the difficult domestic and external economic environment, the economic crisis in Europe has reduced demand for exports, which have been slow to recover in recent years. The fiscal deficit is on the rise, as the government balances concerns of stimulating economic growth with the need to reform its costly subsidy and public pension systems. The heightened economic risk and overall liquidity shortage has made banks more hesitant to lend, which has limited access to credit and made for a more reserved investment context.

 

However, state and bourse authorities do have an opportunity to improve conditions for companies to offer IPOs, to launch short-selling operations and to increase the number of trade and investment opportunities by developing new elements such as stock lending and a derivatives platform. While the market will need time to recover, authorities' more proactive stance in 2013 should see a jump in trading activity and capitalization over the medium term, OBG added.