Business And Markets

Stocks Rebound as Risk Aversion Fades

Stocks Rebound as Risk Aversion Fades
Stocks Rebound as Risk Aversion Fades

After three weeks of continuous downward trend at the Tehran Stock Exchange, stocks returned to positive territory on Monday with the main index rising 149.7 points or 0.21 percent to 71,815.1.

TEDPIX was back on track and gained with major indices contributing to push it to the green, experiencing a decent growth themselves. First market index climbed 0.26 percent or 139 points to 52,846.8. Second market index gained 0.08 percent or 117.5 points to 141,646.5. Free floating index managed to end 0.35 percent or 295.8 points higher at 80,997.8. Industry index inched up 0.16 percent or 94.4 points to 60,875.4. Blue chip index edged up 10.5 points or 0.32 percent, finishing a positive trading day at 3,316.3.

According to the TSE website, 357,925,342 shares changed hands valued at 820 billion rials at Monday's close, a slightly lower number than Sunday.

Despite continued uncertainty over the ongoing nuclear negotiations between Iran and the P5+1 group of major world powers, stocks started the trading day with a rally following eight sessions of decline.

TSE benchmark rally indicated that the bearish trend won't persist in the equity market and that unsettled investors won't leave the stock market. Investors seem to be having a break from a recent wave of bad news, including fresh US sanctions against several Iranian and other foreign companies, banks and airlines. 

President Rouhani has, since his election campaign last year, pledged to revive the national economy. His administration, in collaboration with the Securities and Exchange Organization (SEO) has put forth a broad capital market recovery plan. Officials say the road map will bolster the market, and, as a result, will counter the current economic stagnation.

Cash flow is a company's lifeblood. In other words, a company can sell lots of widgets and have good net earnings, but if it can't collect the actual cash from its customers on a timely basis, it will soon fold up, unable to pay its own obligations.

This package is referring to establish new mutual funds. It collects the cash subsidy handouts the government opted not to pay to specific citizens who it believes can afford their expenditures without receiving cash subsidy. These mutual funds will inject money into the first and second markets.

Some tax incentives will be offered to establish new mutual funds. Besides, exchanging assets and liabilities between the government and the private sector is among the proposed incentives in this strategic plan.

The move may not have a short-term impact on the equity market, but it is considered a major action to bring back liquidity to the national economy, a market analyst said.

TEDPIX is widely considered as one of the most precise gauges for the economic status. Looking into the details of the equity market's performance within the past few months, it would be quite evident that TSE is still grappling with its problems. 

TSE itself is not a large-scale market, but it has already proved to have great potential to bolster the economy and help industries flourish after performing exceptionally well in 2013.

The financial sector, which was one of the hardest hit by the western sanctions, grew more than 120% in 2013, posting the highest increase among all sectors. Oil and gas companies were the second biggest gainers, recording a growth of more than 100% in 2013 as prospects for oil exports brightened.

Market analysts believe that bull market will emerge as soon as sanctions are lifted. Iran and the P5+1 have agreed to extend negotiations to reach a final nuclear agreement until November 24.

International companies should start planning for their Iran projects, analysts say, as the thaw in diplomatic relations would open the door to foreign investment, especially in Iran's capital market.

One area ripe for government contracts would be the country's energy sector. Energy infrastructure needs to be upgraded. New oil fields and giant petrochemical plants will be, in particular, eye-catching for frontier investors.

A foreign frontier market analyst says Tehran stock exchange, the basic metals and banks are the latest sectors that are en vogue, followed by telecoms.

"The stock market has the possibility of attracting attention as it is relatively large and liquid and could be an interesting part of a Frontier fund," he said.

Global equity income is becoming increasingly popular as a growing band of companies throughout the world pay larger dividends to shareholders – a trend that is expected to continue, according to analysts.

TSE has been a prominent regional market in the past two years with close to 130 percent return to its investors. Analysts say that, as soon as the investors' trust is fully guaranteed, capital will fly onto this dynamic market.