Economy, Business And Markets

Stock Market Rattled by Ambiguities

Stock Market Rattled by AmbiguitiesStock Market Rattled by Ambiguities

The all-embracing bearish trend at the equity market spooked individual and institutional investors at Saturday’s close, with the Tehran Stock Exchange notching a record low since March 28.

The US hawkish approach to jeopardize a nuclear deal with Iran, as well as systemic risks surrounding almost every single industry at the TSE, thrashed stocks and dragged down the TEDPIX to extend a 4-day losing streak and plummet 0.84 percent to hit a new record low.

The US senate overwhelmingly passed a bill on Thursday establishing Congress’s right to weigh in on international negotiations over Iran’s nuclear program, the Wall Street Journal reported. The 98-1 vote capped weeks of bipartisan efforts to strike a deal on the legislation and then protect it from unraveling on the Senate floor under the weight of GOP attempts to push the Obama administration to take a harder line with Iran.

Meanwhile, uncertainties about feedstock prices, the burden of lingering sanctions on banking, auto, mineral and other sectors, along with the country’s deep recession are dramatically slashing local investors’ expectations.

According to TSE data, the overall index tumbled 538.9 points or 0.84 percent to settle at 63,530.2. The first market index fell 582.6 points or 1.25 percent to stand at 45,849.2. The second market index - as the only positive contributor to the benchmark - edged up 111 points or 0.08 percent to 131,028. The free float index plunged 831.8 points or 1.13 percent to 72,740.5. The industry index slumped 329.3 points or 0.63 percent to 52,328.3, and the blue-chip index also shed 35.9 points or 1.22 percent to 2,903.9.

Close to 762 million shares changed hands, valued at around 2.05 trillion rials, with Mobin Petrochemical Company (MPC) accounting for nearly half of the trade volume.  

The Islamic Republic of Iran Shipping Lines with 49.49 points had the most positive impact on the TEDPIX. Tamin Petroleum & Petrochemical Investment Company and the MPC took the second and third place respectively.

Among market laggards, Telecommunication Company of Iran, Bank Mellat and Persian Gulf Petrochemical Industry Company heavily weighed on the TSE’s gauge.

 TSE’s Appeal for Int’l Fund Managers

With the equity market going through a dramatic slump in trade volume and value over the past month and the listed companies grappling with sever dilemmas; one wonders what is driving the international fund managers to explore the supposedly lucrative untapped market?

Iran’s stock market, with a market capitalization of $106 billion, about 500 listed companies and daily trading of $80-$100 millions, is among the largest in the Middle East and could potentially attract tens of millions of dollars in foreign investments if the western sanctions (tied to Iran’s nuclear program) are lifted.

Limping economy, investors’ overreactions and dented sentiments amid lingering ambiguities surrounding the future of the sanctions have been blamed for the lackluster trade at the TSE, though, it has been proven that any practical step towards a comprehensive nuclear agreement between Iran and the P5+1 (the five permanent members of UN Security Council plus Germany) could substantially mitigate the underlying risks and change the equity market’s sentiment drastically.

Hence, veteran investors including international fund managers tend to garner stocks that have hit rock bottom values with growth potential after their tragic fall.

Despite sanctions, Iran is one of the world’s top 30 economies, according to data compiled by the International Monetary Fund’s World Economic Outlook for 2014. For the first decade of the 21st century, annual growth rates hovered around 5 percent, sometimes reaching as high as 7 percent. The 2010 round of sanctions were devastating, but the government has recently announced the return of positive growth. According to an International Monetary Fund forecast, the Iranian economy will grow 2 percent in 2015, an impressive reversal from the 5 percent contraction that occurred in 2012, Aljazeera reported.

“The expected removal of western sanctions, particularly the targeted measures against Iran’s oil and financial sector, could pave the way for a huge and much-needed inflow of foreign investors and recovery of Iran’s oil sector and heavily-battered currency,” Huffington Post wrote on April 6.

The well-educated young population, abundant natural resources specifically in mining and energy sector, geographical positioning, diversification of industries, relatively cheap but skillful workforce, and low utility expenses are just part of the factors that are enticing investors from overseas.

The investors’ backlash could be expected to change dramatically provided that the government manages to push the economy back on track with prudent policies or removal of systematic risks dominating the equity market.

The bottom line is that any upbeat news about the ongoing nuclear negotiations could shake off the TSE’s blues, making the stocks hit record highs. Inflow overseas  cash and freeing up of more government funds would also ease the burden on the state budget.