EghtesadOnline: The bigger they are, the harder they fall. Tehran Stock Exchange’s recent wild rush was bound to crash eventually, and new market-changing regulations coupled with protests over price rises in Tehran and other cities only augmented the force of gravity.
TEDPIX, TSE’s benchmark index, nosedived by 1,649.82 points or 1.70% on Sunday to wipe nearly all its gains for the past two weeks. It ended trade at 95,561.6, a far cry from the all-time highs it boasted a few days ago.
This was TEDPIX’s largest fall since March 2015. What makes it even more eviscerating is that the index had lost 1,147 points over the last three trading days.
Only 23 companies ended Sunday with growth and about 30 gave a boost to the benchmark. The rest of the 307 stock tickers were down on both fronts, with panicking non-institutional investors making up most of the sellers, Financial Tribune reported.
“The TSE index had significant growth in the last couple of weeks and it needed to cool down. Its cooldown coincided with the recent political developments, and [Securities and Exchange Organization’s] new regulations also upped investment risk,” Sepehr Investment Bank’s International Finance Manager Mahdi Asima told Financial Tribune in a telephone interview.
> Main Cause of Free Fall
Political developments pointed out by the analyst were the stock market’s main cause of the index's freefall.
It all started in Mashhad, Khorasan Razavi Province, on Thursday, when a group staged a protest reportedly over the high cost of living and unemployment.
Protests spread over to other cities such as Esfahan, Kermanshah, Rasht, Qom, Sari, Hamedan and Qazvin on Friday.
The stock market, as sensitive as it is, did not dramatically react to the unrest across the country on Saturday. But the market’s political risk peaked when the protests seeped into the capital.
Other markets reacted similarly to the developments. The rial devalued 0.76% against the US dollar to 42,350 on Sunday and 1.16% against euro to 51,230 rials.
Bahar Azadi gold coin jumped 1.01% to 13,950,000 rials by the day’s end, according to Tehran’s Gold and Jewelry Union.
> Changing Regulations Spook Investors
It seems that TSE’s new announcements also had their share in TEDPIX’s drop.
Implemented as of Saturday, the SEO announced that it will suspend any firm’s trading that refuses to publish new financial data within pre-defined periods or post constant losses for the last two fiscal years, as part of the issuers’ commitment to their listing requirements.
The list of companies in line for suspension as well as those already suspended was added in a new tab at the exchange’s website at www.tse.ir.
Investors who visited www.codal.ir, the reference for firms’ financial data, were greeted with red warning signs next to the notified companies. The cause of the marking ranged from the companies’ lack of audited H1 financial data to certain firms posting losses for two consecutive years. And only three, facing imminent bankruptcy, were mandated to hold an extraordinary general meeting to find a way out or vote for dissolution.
The shocking fact was that some of those put on notice were market leaders such as Mobarakeh Steel Company, who had spearheaded the market’s spiking growth in recent weeks fueled by investors’ confidence.
Another move contributing to further confusion was the decision to remove publishing earnings per share forecast requirements for issuers. They are to be replaced with descriptive corporate reports on companies’ performance.
According to SEO official, Mohasen Khodabakhsh, the move is aimed at “promoting transparency and basing the market on analyses and expert opinion”, Bourse Press reported.
Asima described SEO’s new measures as innately positive, but “hasty and unthoughtful”.
“First, knowing a ticker’s status at a glance is great, but suddenly implementing it inflates market risk,” he said.
“Also, removing EPS forecast is fine as it prevents companies from starting the year with exaggerated forecasts while ending it with losses. And it helps the market become more analysis-oriented, with each investor either calculating company earnings on his own or seek professional consultation.”
The negative side to it, however, is that Iran’s capital market is highly susceptible to psychological factors and herd mentality. With no EPS forecast, the way will open for social media rumors and unofficial data to distort market trade.
Simply introducing the measures, Asima said, is not enough, as market regulators must also supervise social media channels and provide a reference for investors’ inquiries.
Market analyst Mohsen Abbasi also told Bourse Press that in the absence of dependable analytical services and organization, the new measures will mostly likely end up hurting smaller investors and firms such as contractors whose performance reports have very little to do with their future profit.
> Can TSE Rebound?
TSE’s potential track change depends on whether the negative political signals will continue or subside, said Asima.
“This is unlikely to hold up. The agitation will eventually die down,” he added.
Market expert Hamid Mirmoeini described Saturday and Sunday drops as “overreaction” and noted that many will see the current lower prices as an opportunity for buying.
Mirmoeini added that other rival markets are still no match for stocks’ returns, forecasting that trade will pick up again in the capital market as companies return with the nine-month performance reports.