Cablegate: Casablanca Exchange Mirrors International Trends,


DE RUEHRB #0893/01 2631656
R 191656Z SEP 08




E.O. 12958: N/A

Sensitive but unclassified. Not for internet distribution.

1. (SBU) Summary: The Casablanca Stock Exchange mirrored
international market developments this week, giving up what
remained of the gains it had registered earlier in the year
on Monday and Tuesday, before stabilizing and rebounding on
Thurday and Friday. As elsewhere, market concerns initially
centered on the real estate sector, but later extended to a
wide range of securities that were perceived to be
overvalued. Moroccan officials moved to reassure the market
on Wednesday and Thursday, stressing that capital account
restrictions shelter Morocco from ongoing convulsions in
international markets, and that its own economic fundamentals
remain strong. Some analysts even view the correction as
salutory, as it comes after five years of largely
uninterrupted gains. End Summary.

2. (U) International market volatility found an echo on the
Casablanca Stock Exchange this week, as the market sank
sharply on Monday and Tuesday, with the two principal
indexes, the MASI and the MADEX, losing 3.97 and 4.05 percent
respectively on Tuesday, after dropping 3.49 and 3.63 percent
on Monday. Their loss narrowed on Wednesday, and they then
rebounded sharply on Thursday and Friday, with gains of 2.60
and 2.83 percent and 4.10 and 4.22 percent respectively.
Overall, between September 3 and 16, the market gave up all
its gains for the year, going from an overall increase of
10.9 percent to a loss of 3.1 percent. Thursday's gains
moderated the loss, and the indexes returned to positive
territory for the year on Friday. Analysts highlighted the
fact that the losses early in the week came on slender
volumes of 500 million MAD, barely above the typical daily
volume of 350 million MAD. They argued that this indicated
that the panic had not become widespread.

3. (U) The downward trend, initially concentrated in
construction and real estate stocks, affected virtually the
entire market, with 68 of 77 quoted companies losing ground.
Developer Alliance Development was the hardest hit,
registering a loss of nearly 24 percent, while cement
companies were also sharply down, as were real estate
companies CGI and Addoha, which had led the market earlier in
the year. Analysts point to the fact that many of these
stocks had experienced an unprecedented run-up in price, and
investors believed that the time had come to realize their
profits. One trader told the leading economic weekly "La Vie
Eco" that it was not just foreign investors who liquidated
their positions, but "local institutional and individual
investors as well." Some analysts even welcomed the
declines, arguing that they returned the exchange to "more
reasonable levels of valuation" and in any case were not that
significant when considered in the context of the exchanges
upward trajectory over the last five years.

3. (SBU) After their absence early in the week was roundly
criticized in the press, government and Central Bank
officials moved on Wednesday to reassure the public. Bank
Al-Maghrib governor Abdellatif Jouahri stressed that Morocco
remains sheltered form the international credit and market
crisis, since "we have no subprimes in our banks" and "our
banking sector has not taken part in the purchase of the
financial instruments issued by American banks." He conceded
that Morocco has witnessed its own dramatic expasion of
credit to the real economy, but stressedthat "we have not
stood by with folded arms." Instead, he said, the bank has
"put in place codes, prudential regulations, and audits that
limit the risks." Jouahri added that while he had planned
to undertake his annual pilgrimmage to Mecca and Medina this
week, he had put off the trip in order to remain on top of
developments. In separate comments, Finance Minister Mezouar
stressed the fundamental health of the banking sector,
following improved supervision over the past decade, noting
that most loans are set at fixed rates. He attributed the
"brutal" declines of early in the week to "investors who took
fright in discussing developments after Iftar, imagining that
the world crisis would also erupt in Morocco."

4. (U) The latest Article IV staff report of the
International Monetary Fund, released earlier this week,
highlights the key factors that explain Morocco's continuing
insulation from international market developments, including
its low external debt and improved macroeconomic policies.
The report notes that financial market indicators show "no

noticeable deterioration of Morocco's risk perception"
relative to other emerging markets, and that gross official
reserves exceed short-term external debt by an 11-1 factor,
more than three times the average for the country's peers.
Moreover, Moroccan financing remains primarily domestic in
orgin, and neither the government, corporates, or banks have
significant financing (and thereby rollowever risk) from
external debt markets. The sole outstanding sovereign bond
represents just one percent of GDP, and while external debt
of the private sector is four times as high, official
reserves of 32 percent of GDP comfortably exceed it. The IMF
assessment is outdated only in its observation that Moroccan
stock prices have not softened, but even here the IMF argues
that a downturn will not significantly affect domestic demand
given that shares are not widely held by the population.

5. (U) Leading market analysts here echo the official
position that the crisis in confidence is unjustified.
Khalid Cheddadi, President of the Interprofessional Moroccan
Retirement Fund (CIMR) told the "Economist" newspaper that
the slide was not based on "objective elements, since the
fundamentals of most companies quoted on the exchange are
precisely the opposite of what happened. He took aim in
particular at widespread concerns that Morocco's real estate
sector is over-extended, arguing that such doomsayers were
conflating the specific segment of high-end properties in
Tangier and Marrakech with the sector as a whole. That
segment, he argued, "represents little in terms of the core
of real estate development in Morocco," which is made up of
economic and mid-level properties, where a large pool of
unsatisfied demand remains to be filled. He predicted that
the market "crisis" will be of short duration, since it is
not based on "any economic or financial disequilibrium, but
simply on a climate of uncertainty, reinforced by a difficult
international climate."

6. (SBU) Comment: The market's rebound late this week has
validated, in the short term at least, these positive
prognostications. Mezouar went so far on Thursday, September
19, to predict that the market would end the year with
overall gains on the order of ten percent. It is not
possible to gainsay the argument that Moroccan markets remain
largely autonomous from their international counterparts.
Their ultimate fate will thus depend more on whether
Jouahri's confidence in the measures the Bank Al-Maghrib has
put into place to guard against deterioration in credit
quality is justified. End Comment.

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