The main learning which can be drawn from year 2016 is the importance of not being dominated by “neutrality” towards the Equity market. Indeed, the Moroccan stock market was particularly persistent during its recovery launched in January 2016, with a solid year to date performance of 24.0%.
During this year end, we are witnessing a rarely observed situation in the Equities market. This is the combination of three factors conducive to stock market performance: (1) strong growth in listed companies forecasted earnings, (2) a significant cash inflow to the equity market, and (3) a lower risk aversion.
With regards to these observations, we are convinced that the stock market environment remains during FY 2017e particularly favorable for stocks offering quality earnings growth and yield. For the selection process of our stock pick, we focus on measurable criteria such as (1) profit growth, (2) dividend yield and (3) balance sheet quality. Following this exercise, we end up with a conviction portfolio represented by 10 stocks. During the 2016e-2017e period, our portfolio displays more attractive valuation multiples compared to the market’s, with a dividend yield around 6,0% and a marginal upside potential of 27%.
Finally, we are convinced that the Equity market will be one of the main opportunities source for investments in 2017. to this end, we prefer to focalize on stocks displaying a real potential upside, rather than debating on Casablanca stock exchange valuation levels on the short run.