The analysis of each Iranian market is important because their interactions shape the overall economy, and by analyzing each of these components, the country’s economic status quo can be comprehended. Therefore, investigating the causal relationship of the stock market can be useful not only for investors but also for the general public, an economic expert, Alireza Tavkkoli-Kashi, wrote for the Persian newspaper Ta’adol. A translation of his article follows:
After the market volatility of 2010, the Iranian stock exchange conditions changed. The benchmark index rose, climbing to over 2.16 million units, as it had recorded a temporary decline after a long time.
Sensitive to USD
This trend reflects the prevailing volatility in the domestic markets, especially the stock and foreign exchange markets. In fact, the Iranian stock market has become very sensitive to the US dollar rate since 2020 and is constantly reacting to volatility.
In other words, the value of shares is based on the dollar replacement value. For this reason, as the dollar rate rises, the stock price and subsequently the benchmark index of the stock market follow an uptrend and the index will fall on the back of the dollar rate decline. But the analysis of the index in times of volatility shows that the growth of the index is not always in the interest of investors and the decline of the index cannot always mean losses.
Although the value of a company’s assets increases following a rise in the dollar rate, it reduces the purchasing power of the people, and in the case of non-export companies, it can reduce their sales, revenues and profitability. Therefore, fluctuations in the dollar rate in the long run are not in the interest of companies and investors.
In the long run, other equations emerge: depending on the dollar rate, as it reduces corporate spending and strengthens people's purchasing power, it could benefit the stock market in the long run.
Consequences of Fluctuations
In the current situation and until the dollar rate is stable and the continuous fluctuations in the currency market persist, the stock market will also fluctuate in the short run. Does this cause any harm? In response, it should be said that this fluctuating situation has different consequences.
One of the most important consequences of this situation is the unpredictability of the Iranian stock market that encapsulates all the events taking place in an economy, ranging from inflation rate, currency rate, interest rate, etc. to economic laws, budget deficit laws and budget planning, all of which are effective in market rules and regulations.
The most important factor is the unpredictability of Iran's economy, which is caused by the short life of laws and regulations. If Iran's economic laws, regulations and directives were adjusted for the long run and remained unchanged and the body of the economy ensures their implementation, the markets would become more predictable and this trend could increase the added value in companies and they would suffer less losses.
In fact, companies can focus more on the future vision and make more reasonable decisions on that basis.
Political Factors
I believe that until the end of this year [March 20, 2024], the Iranian stock market and the stock index will follow the political situation of the country.
There are several important political issues and their outcome could be decisive for Iran's economy and market. The first is the discussions related to the lifting of sanctions, the revival of the Joint Comprehensive Plan of Action and how to regulate Iran's diplomatic relations with other countries. The second is the internal discussions. For example, regulations related to the seventh five-year development plan, the way of formulating budget laws and finally the 12th parliamentary elections are very important.
It is important for Iran's economy as to which political group and what strategies are going to take over the legislative power. But more important than the composition of the parliament is how the people are going to participate in the elections. The question is whether there is going to be a high turnout in the upcoming election?
These uncertainties will affect the capital market developments by the end of the current Iranian year [March 2024]. Depending on the answers to these questions and whether these developments impact market trends, the stock market index will experience positive or negative effects.
