LMG Emerge 

Morocco; Strongly Improved Investment Climate 

About the How and Why

December 27, 2013Erik L. van Dijk

CEO/CIO

Presentation Outline 

1. LMG Emerge – Who We Are and What We Believe In

2. Morocco – The Country, The Economy and The Stock Exchange

3. Morocco – Gateway to Africa?

4. Evaluation

1. LMG Emerge  Who we are  

LMG Emerge

Specialist institutional investment consultant in the Continental European Market and Gulf region; currently staff of 10; additional ‘human resources’ via partnerships

Strong ‘Backbone partners’: Emirates NBD (UAE; General Concept, Investment platform & Infrastructure and GLOCAL EM); Invest AD (UAE; GLOCAL FM – Coop in Morocco via Wafa Gestion); Banque Privee/Edmond de Rothschild (FRA‐LUX‐CH; BPERE/Custody)

Asset Allocation (how much to invest in which Country? Sector? Or Asset Class?) approach incorporates 100 countries

• Innovative joint work with Nobel Prize Laureate dr Markowitz (FAJ Mar‐Apr 2003), chosen by drMarkowitz and a group of fellow Nobel Laureates as one of his best articles 

• Research at US top university MIT in Boston confirms added‐value of the approach (+ 1‐2% more risk‐adjusted return)

Investment Manager Selection 

GLOCAL Investment Concept = ‘Global’ + ‘Local’

Certificate of Shariah‐Compliance for new Islamic Products

Advisory Assets under Management more than Euro 40 billion over the period 2005‐current

1. LMG EmergeWho We Are (2) 

LMG Emerge (continued)

Fund Solutions in Luxembourg (2013‐current)

In collaboration with Novacap AM and our backbone partners (BPERE as custodian) construction of a Luxembourg‐based SIF‐SICAV structure that enables us to roll‐out the GLOCAL concept through a series of (CSSF‐regulated) Fund‐of‐Funds for (U)HNW, Family Office and (smaller) institutional clients.

• NHS LMG Glocal Equity Fund (April 2013)

• NHS LMG Glocal Debt Fund (April 2013)

• NHS LMG Glocal Opportunity Fund (April 2013)

• NHS LMG Glocal Turkey‐Central Asia Fund (Forthcoming Q2 2014)

• NHS LMG ESG Shariah Fund (Forthcoming Q1 2014)*

• NHS LMG Shariah Emerging Yield Fund (Forthcoming Q2 2014)*

• NHS LMG Africa Fund (Forthcoming later in 2014 – Q3 or Q4)

Product investing in Morocco

* Ucits IV

1. LMG EmergeWhat We Believe In (1)

• Belief 1 – Size MattersMorocco was for the big direct and portfolioinvestors a relatively small country in (part of;NA) a smaller region (MENA)

Appetite for the country increases, because agrowing interest in Africa is now making it moreimportant

Internal developments providing support

Reweighting in MSCI Indices (from Emergingback to Frontier Markets) actually providingsupport (!)

PROVIDES ALSO SUPPORT TO SMALLERINVESTORS FOCUSING SOLELY ON THECOUNTRY

1. LMG EmergeWhat We Believe In (2)

• Belief 2 – Diversification as Free Lunch

New Frontier Region Africa?Safer to have more eggs in your basket!FUNDAMENTAL instead of MV Weights

Markowitz – Van Dijk, FAJ March/April 2003: New Diversification Framework

1. LMG EmergeWhat we Believe In (3)

• Belief 3 – Frontier Markets are Hot, ‘’Sexy’’ and still Under‐Represented

Better growth chances in fastergrowing economies; lots of newdevelopments;in an environment of (still!)investor neglect

This makes for a greatopportunity IF‐AND‐ONLY‐IFi) forces are bundled andii) mutually‐beneficial co‐

operations with locals areestablished

2. Morocco (1) –The Country, The Economy and The Stock Exchange  

The Country

Constitutional Monarchy; like the Netherlands but king has (far) more power than Willem‐Alexander

Disciplined reaction after Arab Spring turbulence set the Middle East on fire• There were demonstrations• Press was already (relatively) free to start with

• Tricky topics: Islam, the Monarchy and Western Sahara• Moderate reaction government• New Constitution (approved by referendum)

Moderate Islamic party (PJD; 27% of seats) rules after election win in November 2011; PM Benkirane from this party

• Wants to strengthen ties with EU and GCC (with the King himself actively working on ties with US!)• Economic Growth Target: 5.5% per annum• Reduce unemployment rate to below 8% by 2016

Legal System based on French and Islamic Law (mixed): Problem or Scary? Not really; compare the development of Dubai

Pragmatic and realistic approach that almost looks boring and not ambitious enough!

2. Morocco (2) –The Country, The Economy and The Stock Exchange  

The EconomyInteresting Analysis by CIA Factbook

Positive Developments under the guidance of King Mohammed VI; Improved Finances and Stable DevelopmentMorocco has capitalized on its proximity to Europe and relatively low labor costs to build a diverse, open, market‐oriented economy. 

In the 1980s Morocco was a heavily indebted country before pursuing austerity measures and pro‐market reforms, overseen by the IMF. Since taking the throne in 1999, King MOHAMMED VI has presided over a stable economy marked by steady growth, low inflation, and gradually falling unemployment, although a poor harvest and economic difficulties in Europe contributed to an economic slowdown in 2012. 

New Development InitiativesIndustrial development strategies and infrastructure improvements ‐most visibly illustrated by a new port and free trade zone near 

Tangier ‐ are improving Morocco's competitiveness. Morocco also seeks to expand its renewable energy capacity with a goal of making renewable 40% of electricity output by 2020. (LMG: new Wealth Fund focused on Tourism industry; Casablanca Finance City initiative)

International Co‐operative Agreements; and Sector PolicyKey sectors of the economy include agriculture, tourism, phosphates, textiles, apparel, and subcomponents. To boost exports, 

Morocco entered into a bilateral Free Trade Agreement with the United States in 2006 and an Advanced Status agreement with the European Union in 2008. (LMG: And do not underestimate its Gateway to Africa Role – see ch 3; possibilities in selected services (e.g. call centers for French firms; IT for the Arab/French market and the GCC cooperation)

But we are not there yet: Challenges (unemployment, education, investment stimulation, corruption) remainDespite Morocco's economic progress, the country suffers from high unemployment, poverty, and illiteracy, particularly in rural 

areas. In 2011 and 2012, high prices on fuel ‐ which is subsidized and almost entirely imported ‐ strained the government's budget and widened the country's current account deficit. Key economic challenges for Morocco include fighting corruption and reforming the education system, the judiciary, and the government's costly subsidy program.

2. Morocco (3) –The Country, The Economy and The Stock Exchange  

But something needs to be done to mobilize large available savings (>25%!) and cut current account deficits and budget imbalances

Closer Ties:KSA, GCCCoop US, EU+Stimulate INVESTMENTS

EU Economic ProblemsEnergy Costs

Sources: El Cano Institute (Spain); LMG Emerge and IMF

2. Morocco (4) –The Country, The Economy and The Stock Exchange  

The Stock Exchange – LAGGING LIKE CR..ZY PLUS REMOVAL FROM MSCI EM MARKETS!BACK INTO FRONTIER MARKETS SPACE

MSCI Index Market Type Region #Sec Month 1Yr 3 Yr 5 Yr 10 YrBOTSWANA FM Africa 2 3.50% 19.32% 7.36% 1.64%

GHANA FM Africa 2 -0.10% 66.62% 25.77% 13.74%KENYA FM Africa 6 1.94% 63.70% 23.10% 22.85% 14.05%

MAURITIUS FM Africa 2 1.31% 31.07% 9.17% 16.45% 20.67%MOROCCO FM Africa 8 -7.00% -5.42% -7.51% -3.33% 10.32%NIGERIA FM Africa 15 2.32% 38.90% 21.74% 7.55% 13.50%TUNISIA FM Africa 3 -1.66% -7.78% -7.95% 3.27%

ZIMBABWE FM Africa 2 8.87% 53.87% 27.77%BANGLADESH FM Asia ex China 4 2.97% 13.18% -18.48%

PAKISTAN FM Asia ex China 12 1.61% 32.57% 19.12% 13.25% 11.19%SRI LANKA FM Asia ex China 3 -4.44% 10.41% -7.60% 25.93% 9.82%VIETNAM FM Asia ex China 11 -0.10% 20.23% -4.80% 4.06%

BOSNIA AND HERZEGOVINA FM EM Europe/Central Asia 2 -2.08% 7.74% 2.74%BULGARIA FM EM Europe/Central Asia 2 8.44% 78.16% -4.98% 1.15%CROATIA FM EM Europe/Central Asia 3 1.90% -2.17% 1.08% 11.45% 6.42%ESTONIA FM EM Europe/Central Asia 2 -0.59% 33.66% 10.28% 26.49% 10.71%

KAZAKHSTAN FM EM Europe/Central Asia 3 9.20% 6.59% 2.52% 9.20%LITHUANIA FM EM Europe/Central Asia 2 -0.74% 25.49% 8.89% 24.72%ROMANIA FM EM Europe/Central Asia 4 3.99% 44.17% 14.10% 10.31%SERBIA FM EM Europe/Central Asia 2 6.02% 22.47% 0.06% 5.82%

SLOVENIA FM EM Europe/Central Asia 3 2.56% 28.65% 0.15% 0.46% 4.58%UKRAINE FM EM Europe/Central Asia 2 0.75% -18.73% -36.29% -17.10%

ARGENTINA FM Latin America 6 20.50% 114.77% -9.85% 14.65% 13.82%JAMAICA FM Latin America 2 -4.33% -18.91% -5.46% -0.50%

TRINIDAD AND TOBAGO FM Latin America 2 4.00% 25.01% 20.36% 7.37%BAHRAIN FM MENA 3 -6.54% -7.39% -10.33% -19.36%JORDAN FM MENA 3 2.86% -5.31% -7.17% -6.48% 1.19%KUWAIT FM MENA 8 -2.56% 3.51% -1.84% -0.38%

LEBANON FM MENA 5 0.92% 0.88% -7.98% -0.12% 12.08%OMAN FM MENA 8 -0.01% 15.56% -1.42% 3.89%QATAR FM MENA 13 5.68% 29.60% 13.82% 18.78%

UNITED ARAB EMIRATES FM MENA 10 -1.16% 62.62% 19.39% 15.26%Global 143 1.78% 26.17% 4.89% 6.61% 7.22%

AVERAGE 155 1.81% 24.47% 2.99% 7.28% 10.70%

Gross Total Performance; MSCI Indices Nov 2013 (incl last 10 years)

MSCI FM Index

2. Morocco (5) –The Country, The Economy and The Stock Exchange  

The Stock Exchange – BUT RELATIVELY CHEAP AND ATTRACTIVE!RET VAL LMG

MSCI Index Market Type Region SCORE P/B P/E P/C YIELD ROE SCORE SCOREBOTSWANA FM Africa 0.2 2.28 9.85 7.69 3.70 23.12 0.0 0.2

GHANA FM Africa 0.0 5.44 16.02 22.84 4.46 34.00 0.0 0.0KENYA FM Africa 0.0 4.25 15.17 14.86 2.93 28.00 -0.3 -0.3

MAURITIUS FM Africa 0.0 1.62 10.67 9.35 3.40 15.23 0.0 0.0MOROCCO FM Africa 0.3 2.66 14.20 8.81 4.43 18.75 0.3 0.6NIGERIA FM Africa 0.1 2.83 12.80 20.98 3.80 22.08 0.1 0.2TUNISIA FM Africa 0.0 2.13 15.24 6.66 2.95 13.96 -0.1 -0.1

ZIMBABWE FM Africa 0.0 3.61 13.38 9.46 1.74 27.01 -0.3 -0.3BANGLADESH FM Asia ex China 0.4 2.46 15.84 11.36 3.17 15.50 -0.5 -0.1

PAKISTAN FM Asia ex China 0.2 2.64 10.61 8.07 6.49 24.84 0.3 0.5SRI LANKA FM Asia ex China 0.6 1.90 13.89 12.54 2.34 13.68 -0.1 0.4VIETNAM FM Asia ex China 0.7 2.38 16.07 12.09 2.65 14.81 -0.5 0.2

BOSNIA AND HERZEGOVINA FM EM Europe/Central Asia 0.1 0.48 15.24 4.96 5.90 3.13 0.3 0.4BULGARIA FM EM Europe/Central Asia 0.4 0.48 5.68 4.16 1.48 8.45 0.0 0.4CROATIA FM EM Europe/Central Asia -0.6 1.25 11.21 5.82 8.18 11.18 0.4 -0.2ESTONIA FM EM Europe/Central Asia 0.1 0.98 13.39 5.61 5.47 7.30 0.4 0.5

KAZAKHSTAN FM EM Europe/Central Asia -0.3 1.05 7.45 5.85 9.01 14.12 0.8 0.4LITHUANIA FM EM Europe/Central Asia 0.0 2.65 12.88 7.70 7.06 20.57 0.3 0.3ROMANIA FM EM Europe/Central Asia -0.2 1.20 12.32 5.24 2.13 9.74 -0.1 -0.3SERBIA FM EM Europe/Central Asia 0.2 0.66 3.80 2.77 0.00 17.36 0.3 0.5

SLOVENIA FM EM Europe/Central Asia 0.2 1.19 13.82 6.51 3.21 8.60 0.0 0.2UKRAINE FM EM Europe/Central Asia 0.1 0.36 2.84 2.25 0.63 12.72 0.3 0.4

ARGENTINA FM Latin America 0.3 1.30 6.63 3.13 1.52 19.56 0.5 0.8JAMAICA FM Latin America 0.2 0.71 4.81 4.74 6.42 14.70 0.8 1.0

TRINIDAD AND TOBAGO FM Latin America 0.0 1.82 12.59 7.59 3.10 14.43 0.0 0.0BAHRAIN FM MENA 0.2 0.96 22.78 4.75 3.53 4.23 0.0 0.2JORDAN FM MENA 0.0 1.10 15.68 9.19 4.39 7.03 0.1 0.1KUWAIT FM MENA 0.6 1.74 17.96 8.66 3.53 9.70 -0.4 0.2

LEBANON FM MENA 0.6 0.93 15.74 87.41 3.50 5.92 -0.3 0.3OMAN FM MENA 0.7 1.47 10.38 6.84 4.73 14.21 0.3 0.9QATAR FM MENA -0.2 1.92 14.04 7.44 4.25 13.66 0.3 0.0

UNITED ARAB EMIRATES FM MENA 0.0 1.30 14.16 11.15 2.15 9.16 -0.4 -0.4Global 0.3 1.72 12.88 8.08 3.73 13.31 0.0 0.3

AVERAGE 0.2 1.80 12.41 10.83 3.82 14.90 0.1 0.2Normalized 0.0 1.75 12.00 8.00 3.00 15.00 0.00 0.0

Gross Total Performance; MSCI World Countries - Nov 2013 Valuation Indicators

MSCI FM Index

3. Morocco; Gateway to Africa? (1) Africa: The World’s Ultimate Frontier

Geographical Region

North Africa

Saharan Africa

West Africa

Central Africa

East Africa

Southern Africa

LMG Investment Region

I South Africa (35%)*

II North Africa (30%)*

III Sub‐Saharan Africa (ex‐SA; 35%)*

I

II

III

* = Strategic weights based on LMG’s Fundamental Benchmarking methodology

3. Morocco; Gateway to Africa? (2) Ultimate Frontier With Potential

Population GDP‐PPP Per Cap MV Stock Market 2010 2011 2012 2013 2014South Africa 52,982,000 $592.00 $11,173.61 $855.70 3.1% 3.5% 2.5% 2.0% 2.9%

Egypt 84,605,000 $548.80 $6,486.61 $48.68 5.1% 1.8% 2.2% 1.8% 2.8%Morocco 32,950,000 $174.00 $5,280.73 $69.15 3.6% 5.0% 3.0% 5.1% 3.8%Tunisia 10,889,000 $107.10 $9,835.61 $10.68 3.1% ‐1.9% 3.6% 3.0% 3.7%Algeria 38,295,000 $277.40 $7,243.77 $0.00 3.6% 2.4% 2.5% 3.1% 3.7%Libya 6,323,000 $78.63 $12,435.55 $0.00 5.0% ‐62.1% 104.5% ‐5.1% 25.5%Nigeria 177,096,000 $455.50 $2,572.05 $50.88 8.0% 7.4% 6.3% 6.2% 7.4%Kenya 43,291,000 $77.14 $1,781.89 $14.46 5.8% 4.4% 4.7% 5.9% 6.2%Ghana 26,441,000 $83.74 $3,167.05 $3.53 8.0% 14.4% 7.0% 7.9% 6.1%Angola 21,256,000 $130.40 $6,134.74 $0.00 3.4% 3.9% 8.4% 5.6% 6.3%

Botswana 2,096,000 $32.06 $15,295.80 $4.11 7.0% 5.1% 3.8% 3.9% 4.1%Ethiopia 86,614,000 $105.00 $1,212.28 $0.00 8.0% 7.5% 7.0% 7.0% 7.5%DR Congo 74,618,000 $28.03 $375.65 $0.00 7.2% 6.9% 7.1% 6.2% 10.5%Tanzania 45,950,000 $75.07 $1,633.73 $1.26 7.0% 6.4% 6.9% 7.0% 7.2%Uganda 35,363,000 $51.27 $1,449.82 $1.79 5.6% 6.7% 2.6% 5.6% 6.5%Sudan 35,150,000 $86.67 $2,465.72 $0.00 2.5% ‐1.9% ‐4.4% 3.9% 2.5%

Cote d'Ivoire 23,919,000 $41.01 $1,714.54 $7.10 2.4% ‐4.7% 9.8% 8.0% 8.0%Mozambique 24,491,000 $26.69 $1,089.79 $0.00 7.1% 7.3% 7.5% 7.0% 8.5%Madagascar 21,852,000 $21.76 $995.79 $0.00 0.4% 1.8% 1.9% 2.6% 3.8%Cameroon 20,930,000 $51.61 $2,465.84 $0.23 3.3% 4.1% 4.7% 4.6% 4.9%

TOTAL AFRICA 1,099,755,000 5.0% 3.0% 6.4% 4.9% 6.0%

MV Data from CIA Factbook (not MSCI)Expected GDP Growth Data from IMF (2013‐14), others CIA FactbookGDP ‐ PPP and MV Stock Market Data in Billions of USD

GDP Real Growth Rate (est)

Source LMG Emerge

3. Morocco; Gateway to Africa?The Ultimate Frontier’s Leaders

South Africa, still Africa’s nr 1 economy. And home of the Jo’burgStock Exchange (SAF): Big and liquid enough to make people think about BRICS instead of BRIC

Morocco: From Small in the EM Index to Big in the FM Index and with the ambitious Casablanca Finance City plans on their way, supported by Gulf money

Egypt, Cairo: The GSAM Next‐11 country and the Nile metropolis will be back sooner or later, carried by a large and entrepreneurial population

Nigeria, Lagos: Africa’s Biggest Population, GSAM Next‐11 status, Oil‐rich Powerhouse in West Africa. Misunderstood and feared by (too) many foreign investors. But can one afford not to be here?

Nairobi, Kenya: In the country of great runners the economy sprinted from backward to advanced by African standards. Metropolis in Eastern Africa; home of a financial sector with payment systems that are even advanced by world standards

4. Evaluation (1) 

Conclusion Positive ChallengeStable Economy Absolutely But something needs to be 

done about deficits

Focus on International Co‐operations

Absolutely Find the right mix between EU / France; GCC ; US

‘’Gateway to Africa’’ story interesting new trump card

Absolutely ‘Sell’ the country in a broader setting (West Africa?) either alone or together with other North African countries

Interesting new development initiatives stimulate growth

Yes, especially the ‘free trade zone’ and ‘wealth fund’ models borrowed from GCC/Saudi examples

Casablanca Finance City: can it work?Tourism/Real Estate/Infrastructure Wealth Fund?UAE/DUBAI EXAMPLE!

Fight corruption Yes, but a minefield Maintain acceptable level of freedom/liberal rights and mixture of Western/French and Islamic Law influences

4. Evaluation (2) Sectors Do’s Don’t’sTourism Study government 

plans/initiatives carefullyLow budget

Phosphates Larger scale firms

Agriculture A lot goes; but make sure to go for good quality and export potential

‘Subsistence +’ farming

Textiles & Apparel Yes; but focus on ‘style’ and costs

Excessive cost focusMorocco is not Bangla Desh!

Information and Communication ‐ Technology and Related Services

Look for specialized applications with potential to export into France, West Africa and Arab world

Local marketGeneral products

Finance and Insurance Niche services focused on West Africa and Maghreb not offered by big banks/insurers;Islamic Finance;Big institutions with export potential

Forget this sector when you don’t have a local partner and/or knowledge of international regulatory framework and its (recent) changes

Sub‐components Yes, focus on low labor costs and RELATIVELY reasonable education levelsPreferably co‐ops with international brands or international brand quality

Locally good enough is not good enough anymore!!!

Real Estate A‐level plus (upper) Middle‐Class Focus

Excess leverage