Tehran stocks ended the trading week with a bang, as both Tehran Stock Exchange and Iran Fara Bourse reached new highs on Wednesday's close.
The day's meteoric rise was rather unexpected on the surface, yet a long time in the making. A ballooning money supply, fast-devaluing currency in the unofficial foreign exchange market and the subsequent outflow of money into other markets such as housing, auto and gold were all setting up a springboard for stocks.
TSE's all-share index TEDPIX closed 2,767.58 points or 2.87% higher on Wednesday compared to the day before to reach a four and a half-month high of 99,414.5.
This is TEDPIX's highest single-day growth ever. And what's more, the index is now only about 500 points lower than its all-time high of 99,607.
TEDPIX has basically recouped most of the recent losses incurred over escalating political risks and a new foreign exchange regime. And the 1.93% growth in TSE's equal-weighed total index, which only needs 1% more to hit its historical high, shows that the market has been buoyed as a whole.
As a sign of stocks turning up the heat, both the number of traded shares and trade value grew over 55% compared to Tuesday. Over 1.6 billion shares valued at $103.72 million were traded at TSE on Wednesday.
As expected, large-cap base metal and petrochemical stocks were the main TEDPIX boosters. The flagship steelmaker Mobarakeh Steel Company was at the top, followed by Persian Gulf Petrochemical Industries Company and National Iranian Copper Industries Company.
IFB's main index, IFX, finished at a new all-time high. It surged by 37.17 points or 3.33% to reach 1,153.75. The index's single-day growth is also unprecedented.
Trade statistics were slightly down at IFB, however, since most of the cash went into large-cap stocks. About 412.4 million securities valued at $43.56 million were traded for the day.
Steelmakers and petrochemicals were also IFX' main boosters. Marun Petrochemical Company emerged at the top and was followed by Zagros Petrochemical and Esfahan Steel Company.
> FX Grows, Others Follow Suit
Last fiscal year (March 2017-18) saw Iran going through a currency shock, as the rial lost over 30% of its value against the US dollar. Things exacerbated further in the current year with the currency losing another 20% to around 58,650 rials by April 9.
Thus, "expecting a hike in forex-based assets' price seemed only logical", Mehdi Farivar, portfolio manager at Griffon Capital, told Financial Tribune.
"Yet the threat of [new] FX regulations, including currency repatriation dented investors' sentiment toward the capital market compared to parallel makers such as housing, auto and imports."
In order to prevent further depreciation of rial, President Hassan Rouhani's administration introduced several market control mechanisms on April 9. In addition to unifying Iran's dual forex rate regime and setting the USD/IRR rate at 42,000 rials, the government obligated exporters to return 95% of their currency yields to the country, effectively barring them from selling their hard currency at market rates.
Yet, despite the government's best efforts, a forex black market came into being with rates usually 20,000 rials higher than the official one. This was due to the fact that only so many were eligible to receive USD at 42,000 rials. Demand remained high and prices kept soaring.
However, the ever-ballooning dormant money supply exhibited a series of erratic movements in different markets, mostly over investors' concerns about capital devaluation.
According to Farivar, this could be best seen in the recent bull run in Iran's gold coin and FX market.
Bahar Azadi was up 2.8% on Sunday and fetched 25.32 million rials. Half Bahar gained 1.64% and changed hands for 12.38 million rials, according to Tehran Gold and Jewelry Union's website.
The benchmark coin crossed another psychological threshold in a series of price surges that have rocked the market in recent days.
And some of the capital circulating in different markets was eventually bound to enter the capital market, too. In fact, the capital market "buys made near Tuesday's close signaled the anticipation of new movements in the market meant to recoup shares' losses in dollar terms".
Sepehr Investment Bank's investment manager also echoed similar remarks, emphasizing that the rising USD rates created a chain reaction that boosted nearly all commodity prices.
"All imported goods' prices grow in line with rising USD/IRR rates. Consequently, the alternative local goods, which always maintain a certain price difference with imported ones, experience a price hike to cash in ... The [stock] market grows accordingly, as global prices have improved and the wandering capital needs a place to land," Mohammad Reza Semsar added via a telephone interview.
> Can Growth Be Sustained?
Analysts seem split on whether the current growth can be sustained beyond the short-term scope.
For starters, Farivar believes that the momentum will be sustained in the current year, as fresh money supply is entering the market at a serious pace.
"This trend will continue, as capital pours into investment funds. Meanwhile, companies' upcoming general meetings and high dividends will bring about the perfect time for the index's growth–TEDPIX hitting new highs is expectable," he said.
In fact, he emphasized, the momentum can be effective enough to delay the negative effects of new sanctions, forex regulations and controversies surrounding FATF's implementation in Iran.
Tose'e Melli Group Investment Company's managing director, however, believes that "most of today's buys were based on psychological factors and the index's growth cap seems to be 100,000".
Khodadad Gharibpour also acknowledged forex and fresh money supply's impact on the market, yet emphasized the overarching role of systematic risks in the current market climate.
Isa Rezaei, former manager of Kosar Financial & Credit Institution, was on the same page, saying that "we can only rejoice when the economic outlook is positive and transparent ... [but] the economy is facing serious questions: Have the companies' profitability really changed for the better over improving economic factors or is it all due to a rising dollar?" he was quoted as saying by Bourse 24.
