EghtesadOnline: With steep volatility in the bourse here to stay, the research deputy chief of the Majlis Research Center says much-needed stability in the market demands structural reforms at the macroeconomic level.
In a PowerPoint presentation to MPs, Ali Rouhani outlined a plan to lift the share market and curb the destructive volatility that has wiped out billions in the past 18 plus months, the MRC website reported.
The plan, among other things, calls for creating a climate for indirect investment by neophyte investors by expanding and diversifying financial institutions and instruments.
This must be accompanied by sufficient training to improve the financial literacy of the retail investors,” Rouhani said.
He called on the government to “make swift changes” in the tax system to discourage investment in speculative markets. The official pointed to a pending capital gains tax bill and urged the Raisi administration to expedite its enforcement.
CGT is levied on profit from the sale of gold, gold ingots, platinum, foreign currency, real estate and cars. Stock trade is tax free in the proposal.
The government also should stop intervening in pricing goods manufactured by the listed companies and let the market decide prices.
“We cannot expect the stock market index to rise under the mandatory pricing system and when consumer prices keep rising.”
To curb deficit spending the government must slash expenses and prepare budgets based on realistic estimation of revenues, he stressed.
Increase in share prices must stem from “fundamental” economic factors such as increase in production and export, improving investment security and letting prices be determined only by demand and supply -- a paramount need that requires the government to end its intervention in prices.
Apart from these fundamental economic prerequisites, share prices can rise subject to inflation expectations arising from increase in forex rates and the possibility that the government may continue to depend on fiat money for deficit spending.
Taking into account the key factors in share prices, Rouhani said that no one should think of forex rates declining and at the same time expect stock market indicators to rise.
It also is not reasonable to expect inflation to decline and the stock market to rise. The existing dire conditions are the outcome of the government’s deep deficits, he recalled.
The share market was battered when the price bubble burst in the summer of 2020. The new government has pledged to take measures to foster the market and help millions of retail investors who lost their life savings when the bourse was hit by a tsunami of selloff.
Earlier in the week senior economic, banking and capital market officials met with Raisi to discuss ways to help safeguard the financial markets.
The Economy Minister Ehsan Khandouzi, Governor of Central Bank of Iran Ali Salehabadi and head of Securities and Exchange Organization Majid Eshqi said they will set up a joint committee to ensure polices and processes in the capital and money markets are not at odds.
Khandouzi and Eshqi were summoned to the Majlis to brief lawmakers on the failing health of the bourse.