Business And Markets

SEBA Secretary Speaks On Equities

SEBA Secretary Speaks On Equities
SEBA Secretary Speaks On Equities

Market making funds (MMF), which are expected to be established soon for dealing and making market, will serve the interests of both the market and the MMFs, according to the secretary of the Securities and Exchange Brokers Association.

The association has recently approved requests for the establishment of MMFs. 

“Other than providing liquidity, it is an opportunity for financial service firms and institutional investors to increase their profits via market making activities,” said Rouhollah Mirsanei.

He said he believes “except for the past few days,” when reports of fresh US sanctions led to a drop in the Tehran Stock Exchange’s index, “the market has generally been stable and now awaits good news.” The TSE has fallen by 6.2 percent in the past six months.

Mirsanei told SENA that his expectations about future of Iran’s foreign relations and the result of the ongoing nuclear negotiations are positive.

Iran is currently negotiating with the P5+1 – the US, Britain, France, Germany, Russia and China — to lift sanctions directed against it by addressing international concerns over the scope of its nuclear activities. 

On the domestic side, with the submission of the government’s plan of action for supporting manufacturing and exiting recession to the parliament, “good news is on its way.” 

Mirsanei expects that the plan along with a motion suggested by the parliament on recession exit, the economy will show signs of recovery and the effects will be reflected in the equity market.

 “The market has had a correction and so, stability along with positive foreign and domestic news will help it return to a positive trend.” 

The volume of trade and prices in Tehran’s equity market, have gone down for the past six months.

The secretary also talked about the differences between institutional and non-institutional investors, saying, “Fortunately, the activities of institutional shareholders in the market have improved in the past year, but non-institutional investors have been under the  influence of the general trend of the market.”

Mirsanei added that a large portion of institutional investors have “imitated” non-institutional investors, selling out of the bearish market.

Although currently the stock market is plagued by political uncertainty, the brokerage representative said, “it is expected that institutions make long term decisions instead of emulating the actions of small investors, who enter the markets when they’re positive and exit when they turn negative.” 

“Institutional investors have been active in the markets for many years, so they are more experienced and should basically have a long term investment horizon. Their strategy should be long term.”

Mirsanei believes that an institutional investor is basically established “in order to invest in manufacturing companies” and providing them with capital. “That’s why they should have a different view on investing in the equity market, but unfortunately they don’t.” Because investors, institutional and non institutional, think alike, trying to maximize their profits, thus exiting bearish markets.

Also people have the possibility of moving their money to different markets. Thus, institutional investors must have a long term view and stay in the market, so that it can survive the bear market, says Mirsanei. “Decisions made by institutional equity holders mustn’t be based on a short term view. They should rather be focused on the long run. They should analyze the status quo and corrections in prices and then enter the market.”

The brokers association’s secretary general pointed to a collection of incentives to increase the participation of institutional investors, saying, “Many companies can enjoy the market benefits and have profitable activities by creating funds for market making and dealing in equities.”

The brokerage fees for these funds have been remarkably decreased. Besides, the government’s plan of action to exit recession includes tax exemption for dealers and market makers.

 “This will lead to a great reduction in costs for MMFs, thus increasing the profits of holding companies,” Mirsanei added.

The brokerage fees for these funds have been decreased considerably; also the government’s bill for exiting recession has considered tax exemption for dealers and market makers, which lead to a great reduction in the costs for “Market Making Funds.” This will increase the profits of holding companies.

Referring to the position of MMFs in the global arena, although dealing and market making do not exist in such a form, elsewhere in the world, he said, “Such funds don’t operate anywhere in the world for the god’s sake. If they don’t have profits they will not work. Market making activities are certainly profitable.”

In addition to being generally profitable, other incentives have been provided due to current market conditions. Thus “it is better for institutional investors, investment firms, holdings and even issuers to seize this opportunity and establish MMFs.”

Considering one of the major blows to equities in the past year to be the presence of novice traders, he recommended that people unfamiliar with the capital markets and trading should invest via indirect investment avenues, such as buying stakes in mutual funds.

“Indirect investment in capital markets not only decreases investment risk but serves the aggregate market and its long term outlook.”