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In a climate that offers little visibility, it is difficult to set a trend for 2020. While the environment of high interest rates and the politico-economic uncertainty encourage us to be cautious, the resilience shown by the private sector since the Revolution and the floor level of valuations push analysts at Tunisie Valeurs to a "justified" optimism for stock market investment. According to them, listed stocks will always remain an attractive investment even if they recommend a longer investment horizon. A look back at the 2019 stock market year before looking ahead to 2020. 

The year 2019 ended less well than it had begun. The equity market has shown an almost general slowdown after having chained three consecutive years in the green. The two flagship indices of the quotation, the Tunindex and the Tunindex 20, fell by 2.1% and 3.7% respectively.

The lackluster trajectory of the Tunis Stock Exchange in 2019 contrasts with the good vintage for most major international financial centres. These have posted the best performance since the subprime shock, a decade earlier. The MSCI World Index that tracks stocks in developed countries jumped 24%.

The 2019 balance sheet of the Tunisian market also goes against the majority of frontier markets. The MSCI Frontier Markets Index, to which Tunisia belongs, rose 13.5% thanks to the good performance of the Kuwaiti (a recovery of 23.7%) and Vietnamese (an increase of 7.7%). Only Lebanon (a fall of 19.6%), Bangladesh (a decline of 17%), Nigeria (a decline of 14.6%), the BRVM (a decline of -7.6%) and Jordan (a decline of 4.9%) showed more sustained underperformance than the Tunis stock exchange.

The Tunindex's journey is by no means surprising: drying up liquidity, slowing economic growth, tightening financing conditions, a fragmented post-election political landscape and negotiations around the formation of the new government, all factors that have weighed on investor sentiment and baffled the stock market community over the past year. e.

2020: Between clouds and thinning 

2019 was a year full of events: promulgation of a new law on improving the investment climate, conduct of presidential and legislative elections, removal of Tunisia from the FATF blacklist, negotiations around the formation of the new government and many other events that animated investors with a wide range of feelings. Like its predecessors, 2020 promises to be rich in challenges. The equity market should be torn between a fragmented political context, a mixed economic situation, the announced changes in taxation and the attractive level of valuations.

A mixed economic situation

Despite the slowdown in growth prospects in 2019, Tunisia's economic indicators show some recovery in 2019 with the deceleration of inflation, the decline in the budget deficit, the gradual recovery of tourism and the relative improvement in external balances reflected in the consolidation of reserves. in foreign currency and in the retracement of the dinar.

In 2020, the government hopes to achieve growth of 2.7% (against imf projections of 2.4%) thanks to an expected improvement in agricultural activity (a good olive oil harvest in sight) and the recovery of non-manufacturing industries (increase in phosphate production and entry into operation of the Nawara field and Halk El Menzel). The recovery in the outlook for tourism and the expected rebound in exports resulting from a good agricultural season and the reduction of the energy deficit (by 30% thanks to the entry into production of the Nawara field) should continue to support foreign exchange reserves.

On the other hand, the tightening of the budget deficit will encourage a further deceleration in prices and will once again remove the spectre of a sovereign debt crisis. In short, the gradual loosening of economic constraints will give more flexibility to the policy mix and help gradually restore investor morale.

Where does the dinar go?

Since March 2019, the foreign exchange market has operated in relatively calm conditions that have allowed the dinar to gain resilience, appreciating by 8% against the euro and 7% against the US currency (in 2019).

Admittedly, the dinar's trajectory in 2019 is partly dependent on temporary factors such as revenues from the privatization of the Zitouna group. The supply of foreign exchange from economic agents (whether speculative or not) is limited and external financing of sovereign debt, trade deficit or financial agents is not infinite. Our first partner, the Eurozone, is suffering from sluggish growth. Our exports and our industrial fabric have not regained their shape and the trade deficit has reached record highs (17.8 billion dinars at the end of November 2019).

However, there are factors that lend themselves to optimism about the continuation of this reconciliation with the national currency. The continued recovery of tourism, the good harvests of dates and olive oil in sight and the reduction of the energy bill (-30% in 2020 according to government estimates) that would result from the entry into production of the Nawara (natural gas) and Halk El Menzel (oil) fields are all factors that will support the dinar.

Not taking into account the variables exogenous to our economy (which relate to the international foreign exchange market), all the arguments cited above reinforce the thesis of a more controlled fluctuation and a smaller "confidence interval" for the dinar compared to previous years which have seen developments in two figures for the national currency.

In the long term, we will continue to defend that the control of the trade deficit remains the keystone of a regained confidence in the dinar. This objective can only be achieved through a national mobilization to extricate the mining basin from immobility and to support the competitiveness of our exports and by a resumption of investments, mainly foreign.

What investment strategy in 2020? 

In 2020, listed companies are expected to deal with a similar socio-political environment to 2019. This situation will continue to strain companies' cash flow and steer them towards more rigorous resource management to curb inflation and towards exports to escape the prevailing gloom. As for banks, they will have to be more selective to minimize the cost of risk. In doing so, the quality of management, the strength of fundamentals and the low risk profile remain our guiding principle in this unpredictable climate. We advocate a selective strategy that favours companies with low financial leverage, those with a good mastery of the core business, recurring growth and comfortable margin levels, able to absorb the prohibitive costs of debt and imports.

The investment horizon is also a significant factor in our investment strategy. To outsmart the current market gloom and enjoy a good return on investment, we recommend a relatively long investment horizon of at least two years. We also warn investors against sheepish movements and "unjustified" selling waves on certain stocks.

Download the 2019 Retrospective and 2020 Outlook of the Equity Market