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EghtesadOnline: Predictability in Iran's stock market these days is gone and investors are going down the rabbit hole with it.

They still eye companies' performance, macroeconomic indices and parallel markets' movements, but what sways them in the end is "news". As a result, confusion can only be dissected in retrospect.

However, this is not a new phenomenon. Such erratic market movements were first witnessed in early December 2017, after about three quarters of radio silence. Blame was mostly laid at the door of foreign currency market upheaval and political concerns regarding Iran's nuclear deal.

The trend continued for the next two quarters, as rial kept devaluating against the US dollar, the US administration hardened its stance against Iran and confusion ensued over the government's impromptu policymaking, Financial Tribune reported.

Doubling down on unpredictability, Tehran stocks grew to unprecedented highs–jumping about 23%–in only two weeks as this fiscal year's Q1 (March 21-June 21) was coming to an end, and then lost close to 6% in the first two weeks of the fourth month of the year, Tir (June 22-July 22).

Tir also had its share of volatility. In response to the downturn, stocks grew over 3.5% in less than three days, but then lost more than 4% in the next 14 days.

Overall, Tehran Stock Exchange’s main index TEDPIX inched down 42.1 points or 0.03% during the month that ended on May 21 to close at 108,830. Iran Fara Bourse’s benchmark index, IFX, dropped 20 points or 1.6% to stand at 1,222.

 Going Down the Rabbit Hole

Three factors are currently sowing confusion in the market and making analysis arduous, if not downright impossible.

First is the rollercoaster of deposit interest rates. The Central Bank of Iran cut rates back in September 2017 to a maximum of 15%, a move seen as favorable by the equity market as it made other markets, such as stocks, more attractive.

Fast forward to January 2018, CBI started issuing rial certificates of deposit with a 20% yield to combat a currency value meltdown against USD.

And now, rates are in the 15-22% range and there’s no knowing where they are headed. According to Donya-e-Eqtesad, yields on Islamic Treasury bills have reached up to 27% as a precursor to rising deposit rates, yet the government does not seem to be clear on the path it wants to take amid audible dissonance among lawmakers.

Then there’s the foreign exchange rate, with a market yet to cool down after three months of government-enforced USD/IRR rate. The government crackdown on the FX market has given birth to an unofficial black market with no way of actual price discovery, giving way to pure speculation and a rate more than twice the official one.

And finally, fluctuating global commodity prices are making things even hazier. With more than half of Iranian stocks made up of commodity-related stocks, US President Donald Trump’s riding the tariff wave and an imminent trade war with China caused broad selloffs in Iran, as global markets sounded the alarm. 

Commodities, and especially base metals, were Iranian stocks’ primary driver in recent months, and their price uncertainty will not help equities get back on their feet.

Topping them all is the political uncertainty surrounding the fate of the 2015 nuclear deal Iran signed with world powers, formally known as Joint Comprehensive Plan of Action. Trump pulled the US out of the deal back in May and sanctions are expected to return in August and November.

The outlook is hardly predictable, as Iran’s negotiations with European states–the deal’s other signatories–over guaranteed oil purchases and opening up banking channels have yet to reach a definite result.

Yet this begs the question that, why TSE and IFB’s trade volume has jumped so much when all the uncertainties should be discouraging traders?

This is primarily because everyone in Iran is a speculator now.

There’s no denying the risks facing the economy and the fact that they will keep pushing prices (FX, gold coins, etc.). 

With no analysis at hand, market movements are psychologically at the mercy of even the least significant bit of news, such as cutting foreign currency allocated to students who want to study abroad, or conflicting remarks by low-level officials on the so-called secondary forex market.

 Currencies, Gold Coin Surge

Major currencies and gold coin staged a fresh rally in the Iranian month ending July 22, as investment risks heightened and appeal of safe haven assets kept growing.

The gold coin surged 24.8% in value during the month to 30.15 million rials, according to Tehran Gold and Jewelry Union’s data. Its value has skyrocketed since the beginning of the current fiscal year (March 21) by 92%.

The rial was quoted at 103,960 against euro by the month’s close. It marked a 19.67% rise for the European currency in the month, and brought its gains so far this year to 78.13%.

As for the unofficial USD/IRR rate, it grew about 20% to hover around 90,000 rials. 

 Monthly Trade in Detail

Over 33.14 billion shares valued at $1.99 billion were traded on TSE during last month, registering a 32.8% and 21.3% growth in the number of traded shares and trade value respectively compared to the month before.

TSE’s First Market Index lost 1,107 points or 1.39% to end at 78,499. The Second Market Index, however, gained 4,994 points or 2.27% to close at 224,749.

And at IFB, over 10.3 billion securities valued at $1.4 billion were traded during the month, growing 79% and 118% in the number of shares traded and trade value respectively.

IFB’s market cap lost $357 million or 0.9% to reach $38.31 billion. 

Its First Market witnessed the trading of 1.7 billion securities valued at $80.9 million, rising 96% and 124% respectively month-on-month.

About 5.48 billion securities valued at $295 million were traded in the Second Market, growing 177% and 122% respectively.

Over 38 million debt securities valued at $811.4 million were also traded at IFB, up 175% and 150% in trade volume and value respectively.

Exchange-traded funds stood at 241 million worth $92.6 million, up 195% and 363%.

Housing mortgage rights’ trade grew 27% in trade volume and 13% in value to reach 1.95 million securities worth $31.8 million.

 

Iran stock market Tehran Stock Market