Iran’s capital market continues to face challenges and officials need to take practical measures to restore trust to the market.
“What indeed is the main culprit eating away at the roots of the economy is government-imposed pricing that has largely undermined the automotive, cement and petrochemical industries in particular and other sectors in general,” Amir Abbas Karimzadeh, a currency market analyst was quoted by SENA as saying.
Though offering cars and cement at the bourse has relatively helped stabilize prices of these products allowing the market to decide prices can and will improve the profit margin for these industries, Karimzadeh said, the news agency reported.
“Another constraint affecting the share market is the lack of balance between Nima and free market forex rates. If we can narrow this gap export companies will do better. At present, commodity-based industries account for almost 65% of the stock market and a big portion of their products are traded via the Iran Mercantile Exchange (IME).”
Nima is an online platform affiliated to the Central Bank of Iran where exporters sell their overseas income and companies buy for importing goods, machinery, equipment and raw materials. Nima forex rates are lower than the free market.
Karimzadeh added that at the IME, the Nima rate is used to price commodities and companies are obliged to sell their products and foreign currency at the same rates.
“In light of chronic inflation forex rates in the free market have been rising and businesses demand that Nima rates be adjusted [upward] accordingly.”
A key factor that can help direct the stock market back on the path of reliability, predictability and transparency is stable policymaking vis-à-vis petrochemical feedstock and industrial gas prices.
“Business are bearing the brunt of the [US] economic sanctions that have imposed a high cost on manufactures. Petrochemical feed and industrial gas tariffs have to be reasonable in a way that competition is viable with our regional rivals. If we lose our export markets getting them back would be a gargantuan task.”
Tehran’s share market has been grappling with a tsunami of capital outflow with most retail investors in the red.
The decline started in the summer of 2020 when the bubble burst and share prices took a drubbing as never before.
Majid Eshqi, head of the Security and Exchange Organization (SEO) recently listed eight major challenges in the stock market, namely the rising bank interest rates, negative impact on listed company profit margins due to the jump in energy prices, government-imposed prices on goods produced by listed companies and the endless increase in currency rates.
Conducting the sale of goods produced by the Iranian National Oil Refining and Distribution Company via the special energy exchange, divesting shares of major auto companies, stringent rules for export companies regaradless of national interest plus restricting industries’ access to the power grid during summers have been other impediments.
The official offered proposals to help address the endless challenges, including measures to stabilize rates in the interbank market based on previous caps, removing European hub rates in pricing feedstock and energy and the government's controversial pricing policies for listed companies.
The SEO chief urged the government to undertake effective measures to enhance transparency in the financial interaction between the government and businesses and finalize its stance on divesting shares of the main auto companies in which the government is the major shareholder.
