VZCZCXYZ0005
RR RUEHWEB

DE RUEHRB #0893/01 2631656
ZNR UUUUU ZZH
R 191656Z SEP 08
FM AMEMBASSY RABAT
TO RUEHC/SECSTATE WASHDC 9134
INFO RUEHAS/AMEMBASSY ALGIERS 4893
RUEHEG/AMEMBASSY CAIRO 2430
RUEHMD/AMEMBASSY MADRID 6051
RUEHNK/AMEMBASSY NOUAKCHOTT 3812
RUEHTU/AMEMBASSY TUNIS 9717
RUEHCL/AMCONSUL CASABLANCA 4305

UNCLAS RABAT 000893 
 
SENSITIVE 
SIPDIS 
 
CAIRO FOR TREASURY ATTACHE 
 
E.O. 12958: N/A 
TAGS: EFIN ECON MO
SUBJECT: CASABLANCA EXCHANGE MIRRORS INTERNATIONAL TRENDS, 
BUT OFFICIALS STRESS ITS AUTONOMY 
 
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. 
 
 
***************************************** 
Visit Embassy Rabat's Classified Website; 
http://www.state.sgov.gov/p/nea/rabat 
***************************************** 
 
Riley