CDG Capital Insight has published an analysis note on the outlook for the equity market in the face of systemic issues during the year 2023. Initially, CDG Capital Insight pointed out that the majority of stock market indices in the world have experienced a sharp depreciation since the beginning of 2022, following the onset of cycles of monetary and fiscal tightening by the United States and the European Union as well as the great majority of developed and emerging economies.
The equity markets are thus reversing the strong upward trend of the year 2021, which was fueled by the post-Covid recovery as well as by the substantial monetary injections from central banks and the various government aid granted during the pandemic, underlines the report.
Regarding the Moroccan financial center, it was no exception to this logic, underlines the analysis note, noting that the MASI has indeed followed the generally downward trends experienced by other stock market indices such as the EuroStoxx, the S&P or even the MSCI Frontier, reflecting fears of recession induced by the implications of the war in Ukraine, and the pressure under which central banks find themselves in order to contain inflationary pressures with substantial rate hikes. Illustrating this systemic effect, and as is often the case in times of crisis, the MASI exhibited a strong correlation to other global stock market indices during the year 2022, underlines the report.
The recent decorrelation, continue the authors of the report, results from the fact that BAM started the rate hike cycle with a time lag compared to other central banks, noting that the two successive increases in the key rate by Bank Al-Maghreb since September 2022 exacerbated this downward trend in the equity market.
As for the banking sector, the report maintains that it “remains well positioned to benefit from a cycle of monetary tightening”, noting that Moroccan banks would benefit from an improvement in their intermediation margins in the medium term, given the recent hikes in the policy rate.
However, the authors of the report believe that “ this favorable impact would be partially mitigated by a decline in credit demand and continued pressures on asset quality due to the difficult macro-economic environment“.
Indeed, for the year 2023, CDG Capital Insight expects a slowdown in the growth of outstanding loans, given the limited impact of increases in the key rate on loan demand and the slowdown in cash loans. which were partly supported in 2022 by the rise in commodity prices, in particular energy products.
In the end, the reading of the various drivers and challenges of the sector, led the authors of the article to think that the banks listed on the Casablanca stock exchange will record a positive profit performance during 2023.
Regarding the agri-food sector, and after the strong rebound in the price index of agricultural materials reaching its highest level in April, the latter shows a drop of 11% in Q3 2022 compared to the last quarter. The price decline reflects increased supplies following improved yields, Ukraine’s return to global markets and weaker demand in response to deteriorating global growth prospects, the report said.
This downward trend, the report continues, should continue in 2023e according to the World Bank, which is counting on a 5% decline in the price index of agricultural materials. However, food prices in most national currencies are even higher due to the appreciation of the US dollar and remain above their historical averages.
Indeed, several uncertainties persist, according to the World Bank, in particular on the prices of inputs (fertilizers and energy products), a possible deterioration of the world outlook with monetary tightening, a new appreciation of the American dollar or even unfavorable weather conditions, underlines The report.
In this context, the authors of the note estimate that inflationary pressures could continue to favor the growth of the turnover of agri-food companies for 2022, but the increase in inputs and the cost of transport could translate into pressure on their margins.
” We also believe that the performance of agrifood companies hides a certain disparity that would depend on their ability to pass on the rise in costs to households. Indeed, the latter could favor basic products, which would lead to a drop in demand for other products.“, underline the authors.
For 2023, the same source estimates that the expected slight decline in input costs and transport costs should allow agri-food companies to see their margins improve slightly.
it “is at the center of both global and local inflationary pressures”. Indeed, explains the report, inflationary pressures could continue to favor the growth of the turnover of agri-food companies for 2022, but the increase in the cost of inputs and the cost of transport could produce pressure on their margins. “We also believe that the performance of agrifood companies hides a certain disparity that would depend on their ability to pass on the increase in costs to households. Indeed, the latter could favor basic products, which would lead to a drop in demand for other products”, note the analysts of CDG Capital Insight. For 2023, the expected slight decline in input costs and transport costs would allow agri-food companies to see their margins improve slightly.
On the side of the mining sector,the structural trends due to the energy transition constitute a favorable backdrop with, however, a risk of recession which weighs on demand in a cyclical way“, underline the authors of the report, explaining that the performance of the Moroccan mining sector has largely benefited from the rise in the price of metals which are at the center of the global inflationary wave. However, this structural trend remains counterbalanced by 2 factors. The first is the pressure of rising rates around the world which is inducing fear of recession among investors as well as consumers. The second consists of the vagaries of Chinese demand for consumer electronics products, consumers of metals.
Regarding the real estate sector, the authors of the report believe that it is facing supply chain problems, rising construction costs and higher financing costs. As a result, it should suffer from headwinds and, consequently, show sluggish growth during the year 2023, according to the same source noting that the supply and demand ratio could deteriorate further.