The Casablanca Stock Exchange Faces a New Correction Despite Positive Financial Results
In recent weeks, the Casablanca Stock Exchange in Morocco has entered a new phase of correction, even as listed companies continue to report increases in their financial results. This striking disparity, particularly noted since late August 2026, raises an important question: why are stock prices declining while corporate profits are on the rise? CFG Research, in a recent analysis, posits that the performance of listed companies is not the driving force behind the selling trend observed in the market. Instead, several macroeconomic and financial factors are at play, most notably the rising yields on long-term treasury bonds.
The Casablanca market previously experienced a 16% correction in March 2026, which was triggered by geopolitical shocks stemming from the onset of the conflict in the Middle East. Following that downturn, the market gradually rebounded to its early year levels; however, this recovery ceased at the end of August, leading to renewed selling pressures. Between August and October 2026, the MASI index recorded a 12% loss. While the timing of this decline coincided with the release of semi-annual results, which might suggest that investors were penalizing corporate performances, CFG Research's findings indicate a contrary evolution. In the first half of 2026, the profit pool of listed companies grew by 7.4%. When excluding exceptional items that may temporarily skew results without reflecting the companies' regular activities, the growth rate jumps to an impressive 14.2%. This divergence illustrates that the downturn in the market does not stem from a general deterioration of corporate profitability but rather from shifts in financial conditions and investor expectations.
The Impact of Rising Bond Yields on Stock Valuation
CFG Research highlights a crucial mechanism regarding the relationship between long-term interest rates and the valuation of listed companies. When an investor purchases a stock, they seek a return in relation to the risk undertaken. However, they also have the option to invest in bonds, particularly treasury bills, which are viewed as less risky. As yields on these bonds rise, they become more appealing, prompting investors to demand higher returns on stocks to compensate for the increased risk. This demand often results in a decrease in the prices investors are willing to pay for listed securities, even amidst solid corporate profits.
CFG Research identifies this very mechanism as a key factor behind the recent correction of the Casablanca Stock Exchange. They differentiate between short-term interest rates, which are directly influenced by the decisions of Bank Al-Maghrib, and long-term rates, which are more determined by investor expectations and liquidity conditions. The central bank's key rate has remained unchanged at 2.25% since March 2025; however, long-term treasury yields have faced upward pressures. This situation may seem paradoxical in an environment marked by contained inflation. CFG Research attributes this to several factors that have gradually altered the market's risk perception regarding bonds.
The first factor involves the Treasury's financing choices. To meet its obligations, the state can borrow on the domestic market or seek international financing. If investors anticipate that borrowing conditions abroad will become too costly, they may worry that the Treasury will increasingly rely on the Moroccan market. An increase in bond issuances in the local market would lead to more securities that investors must absorb. To attract sufficient capital, the Treasury might need to offer higher yields. CFG Research notes that this uncertainty regarding the future distribution of state financing contributes to the tensions observed in long-term rates, independent of immediate inflation developments.
Furthermore, the banking system's liquidity situation plays a significant role. Facing persistent liquidity deficits, banks have ramped up their issuance of certificates of deposit, financial instruments that allow them to gather funds from investors. These investments draw on available capital in the financial market, meaning that funds designated for these certificates are not immediately available to purchase other securities, including long-term treasury bonds. This scenario creates an "eviction effect," where bank issuances absorb some liquidity, thereby reducing institutional investor demand for long-term public borrowings. Consequently, with diminished demand, the Treasury must offer higher yields to maintain the appeal of its issuances, and this increase in bond rates subsequently impacts stock valuations.
Additionally, the energy bill and phosphate exports have intensified the pressures on the Moroccan market's liquidity. CFG Research notes that the Kingdom's foreign exchange reserves remain robust, totaling 516 billion dirhams at the end of September 2026, which is a 23% increase year-on-year. Despite this healthy level of reserves, the rising energy costs and declining phosphate exports have caused intermittent strains in the foreign exchange market. These imbalances limit the liquidity available in the national money market, thereby affecting institutional investors' ability to subscribe to treasury bill issuances. The decline in phosphate exports is notably linked to the ramifications of the Middle Eastern conflict, as the conversion of phosphorite into fertilizers requires sulfur, which is primarily derived from hydrocarbon refining. Disruptions in the Strait of Hormuz complicate access to this crucial input, directly impacting export activities.
CFG Research concludes that the recent downturn in the stock market, beginning in late August, coincided with a rise in bond yields, amid tensions in the dirham and overall liquidity tightening. Nevertheless, they emphasize that the national currency remains within its fluctuation band.
As investors look forward to 2027, a fourth factor influencing market sentiment is inflation expectations. Although price increases are currently kept in check in Morocco, bond investors are already looking to anticipate future trends. The Kingdom is exposed to fluctuations in international energy prices and agricultural inputs, as well as climatic uncertainties. CFG Research points to the risk of another drought year in 2027, which could negatively impact agricultural production and food prices. Should this scenario combine with persistently high oil prices due to the ongoing conflict in the Middle East, the Moroccan economy could face simultaneous price shocks. In such a case, investors might anticipate a tighter monetary policy and demand higher bond yields to safeguard the real value of their investments.
CFG Research has also conducted additional analysis to ascertain the level of bond yields that corresponds to current market valuations. By comparing the yields on ten-year treasury bonds with the price investors are willing to pay for corporate profits, they utilized the Price Earnings Ratio (PER) as an indicator. This ratio measures how much investors are paying relative to the annual profit of a company when purchasing its stock. CFG Research found that the market implicitly integrates a ten-year treasury yield of 3.80%, while the observed yield in the secondary market hovers around 3.60%. This indicates that stocks are already valued as if bond yields were slightly higher than they currently are.
In conclusion, CFG Research believes that the correction of the Casablanca Stock Exchange has already factored in a significant portion of the macroeconomic and financial risks. With a projected PER reduced to 16.2 times profits, excluding the influence of Managem, the market is trading below its historical average of around 20 times profits. This presents attractive entry points for investors with medium to long-term horizons. However, CFG Research does not rule out the possibility of further increases in ten-year treasury yields towards 3.80%. Even if this scenario materializes, they estimate that the tensions on rates should not persist, as the bulk of the market adjustment has already occurred. The primary risk remains the prolonged conflict in the Middle East, which could disrupt energy supplies and logistics chains. Such developments could accelerate inflation, compel Bank Al-Maghrib to adjust its monetary policy, and reignite sovereign yield increases. Nevertheless, any additional impact on valuation multiples is expected to be marginal, as investors seem to have largely integrated this risk, while the effects on the most exposed companies, particularly banks and industries reliant on raw material imports, would be more immediate.
As reported by lematin.ma.
