29 May 2007
The Casablanca Stock Exchange (CSE) experienced its first technical correction this year. It started on May 8, with May 10 being the most severe single-day drop in the history of the bourse.
In that short period, the Morocco All Share Index (MASI) dropped by 6.16% to 11,948 points, while the Moroccan Most Active Shares Index (MADEX) index fell by 6.35% to 9783 points.
"The correction was predictable. It was its speed and rhythm that surprised the market, said Khalid Nassar, vice president of BMCE Capital. That said, we are confident that the stock exchange will end the year very positively."
The trigger for the sell off was a May 7 study by Attijari Intermediation which fixed the theoretical value of shares in Sonasid, the steel maker owned by Arcelor-Mittal, at Dh2150 a share, 40% below the Dh3500 where they were then trading.
The Sonasid shares have risen by 71% in nine months, from Dh2000 a share to Dh3140 early in 2007. Four days after the original Attijari report, BMCE Capital issued a contradictory one, recommending buying the shares up to a value of Dh3250 a share.
The reason for the difference in recommendations is that they used different techniques. While Attijari Intermediation incorporated actualisation of future cash flows, BMCE factored in the close relationship between Arcelor-Mittal and Sonasid and calculated that the future cash flows factoring in predicted competition to Sonasid did not account properly for the competitive advantage of being linked to such a dominant player on the international steel market.
Although Sonasid shares are widely seen as safe to hold, their value fell by 6% to Dh3285 within the first half hour of trading on May 8. The psychological impact was immediately felt with a rush to sell even sound and significant stocks on the CSE. Shares in subsidiaries of the ONA Holding were the first to feel the pressure, with Lesieur Cristal, SNI (Société Nationale D'Investissement), Managem ONA and the ONA Holding losing ground.
The panic quickly spread to the banking sector, with investors divesting shares in all major listed banks. Even the most respected shares, such as that of Maroc Telecom (IAM), fell victim to the sell off, with IAM shares losing 2% of their value on May 9. BMCE shares fell to a relative low point on May 14 to Dh2650 although they eventually bounced back to Dh2850, 150 lower than they were before the sell off occurred.
The trend confirmed itself on May 10, with 25 of the 65 listed stocks losing more than 5% of their value, 13 of which shed 6%, the maximum allowed during a single session.
"We believe that the technical correction on May 9 was significant as a result of the dilatation of several valuation ratios, Farid Mezouar, financial analyst at the CFG Group, told OBG. This risk was combined with a psychological fear linked to the stock market correction in May 2006. Nonetheless, this drop in levels seemed to us unjustified for certain stocks whose fundamentals were already attractive."
In the midst of the correction, on May 11, another study by Attijari Intermediation said that bank stocks were overvalued by 35%. These stocks, which account for 29% of market capitalisation, represent an average of 40% of the volume of daily traded stocks, while the sector's average P/E ratio stands at 21.5.
In this report on the banking sector, Attijari Intermediation made a comparison of banking sectors in the UAE, Egypt and Morocco, despite important differences. The study has been criticised by BMCE Capital and CFG Group for using such a broad comparative method.
By close of trading on May 11, the MASI had lost a total of 10% in value over the previous three trading days, while the MADEX shed 10.44% over the same period. The MADEX had progressed by 34.87% from the start of the year to May 8, reaching a record high of 12,723 points. By May 14, its rise over the year had been cut to 16.35%.
The first rebound in trading came timidly on May 15, with a confirmation of the rising trend on the following day as the MASI gained 3.37% to reach 11,448 points while the MADEX rose by 3.54% to 9359 points.
The speed with which the sell off occurred testified that many investors saw the Moroccan financial market as overvalued due to the phenomenon of over-liquidity. The phenomenon of over-liquidity stems from the presence of relatively few stocks in the face of high and rising demand on the part of investors. An illustration of this over-liquidity has been the rising oversubscription rates for initial public offerings (IPOs) over the past year. The Colorado IPO in October 2006 was 37.5 times oversubscribed and the Matel PC Market IPO in February 2007 was 68 times oversubscribed.
"Liquidity in the number of stocks traded and the number of companies listed must be improved," said Omar Drissi Kaitouni, director of IT systems at the CSE. "The stock exchange is witnessing a mature evolution and its valuation remains reasonable."
The Casablanca Stock Exchange (CSE) experienced its first technical correction this year. It started on May 8, with May 10 being the most severe single-day drop in the history of the bourse.
In that short period, the Morocco All Share Index (MASI) dropped by 6.16% to 11,948 points, while the Moroccan Most Active Shares Index (MADEX) index fell by 6.35% to 9783 points.
"The correction was predictable. It was its speed and rhythm that surprised the market, said Khalid Nassar, vice president of BMCE Capital. That said, we are confident that the stock exchange will end the year very positively."
The trigger for the sell off was a May 7 study by Attijari Intermediation which fixed the theoretical value of shares in Sonasid, the steel maker owned by Arcelor-Mittal, at Dh2150 a share, 40% below the Dh3500 where they were then trading.
The Sonasid shares have risen by 71% in nine months, from Dh2000 a share to Dh3140 early in 2007. Four days after the original Attijari report, BMCE Capital issued a contradictory one, recommending buying the shares up to a value of Dh3250 a share.
The reason for the difference in recommendations is that they used different techniques. While Attijari Intermediation incorporated actualisation of future cash flows, BMCE factored in the close relationship between Arcelor-Mittal and Sonasid and calculated that the future cash flows factoring in predicted competition to Sonasid did not account properly for the competitive advantage of being linked to such a dominant player on the international steel market.
Although Sonasid shares are widely seen as safe to hold, their value fell by 6% to Dh3285 within the first half hour of trading on May 8. The psychological impact was immediately felt with a rush to sell even sound and significant stocks on the CSE. Shares in subsidiaries of the ONA Holding were the first to feel the pressure, with Lesieur Cristal, SNI (Société Nationale D'Investissement), Managem ONA and the ONA Holding losing ground.
The panic quickly spread to the banking sector, with investors divesting shares in all major listed banks. Even the most respected shares, such as that of Maroc Telecom (IAM), fell victim to the sell off, with IAM shares losing 2% of their value on May 9. BMCE shares fell to a relative low point on May 14 to Dh2650 although they eventually bounced back to Dh2850, 150 lower than they were before the sell off occurred.
The trend confirmed itself on May 10, with 25 of the 65 listed stocks losing more than 5% of their value, 13 of which shed 6%, the maximum allowed during a single session.
"We believe that the technical correction on May 9 was significant as a result of the dilatation of several valuation ratios, Farid Mezouar, financial analyst at the CFG Group, told OBG. This risk was combined with a psychological fear linked to the stock market correction in May 2006. Nonetheless, this drop in levels seemed to us unjustified for certain stocks whose fundamentals were already attractive."
In the midst of the correction, on May 11, another study by Attijari Intermediation said that bank stocks were overvalued by 35%. These stocks, which account for 29% of market capitalisation, represent an average of 40% of the volume of daily traded stocks, while the sector's average P/E ratio stands at 21.5.
In this report on the banking sector, Attijari Intermediation made a comparison of banking sectors in the UAE, Egypt and Morocco, despite important differences. The study has been criticised by BMCE Capital and CFG Group for using such a broad comparative method.
By close of trading on May 11, the MASI had lost a total of 10% in value over the previous three trading days, while the MADEX shed 10.44% over the same period. The MADEX had progressed by 34.87% from the start of the year to May 8, reaching a record high of 12,723 points. By May 14, its rise over the year had been cut to 16.35%.
The first rebound in trading came timidly on May 15, with a confirmation of the rising trend on the following day as the MASI gained 3.37% to reach 11,448 points while the MADEX rose by 3.54% to 9359 points.
The speed with which the sell off occurred testified that many investors saw the Moroccan financial market as overvalued due to the phenomenon of over-liquidity. The phenomenon of over-liquidity stems from the presence of relatively few stocks in the face of high and rising demand on the part of investors. An illustration of this over-liquidity has been the rising oversubscription rates for initial public offerings (IPOs) over the past year. The Colorado IPO in October 2006 was 37.5 times oversubscribed and the Matel PC Market IPO in February 2007 was 68 times oversubscribed.
"Liquidity in the number of stocks traded and the number of companies listed must be improved," said Omar Drissi Kaitouni, director of IT systems at the CSE. "The stock exchange is witnessing a mature evolution and its valuation remains reasonable."
© Oxford Business Group 2007
