Economy, Business And Markets

Small Hint, Large Rebounds

Small Hint, Large ReboundsSmall Hint, Large Rebounds

The forceful rebound of TSE listings last week shows that the end of sanctions (imposed by the West against Iran over its nuclear energy program) could be a ticking time bomb of optimism for stockholders.

Upon news that Iran would not be required to answer questions related to allegations of its past military record of nuclear activities as a prerequisite for sanctions relief, the TSE main index rallied to its highest level in over two months.

US Secretary of State John Kerry made the statement on June 16. The following day, stocks shot up by 1,238 points, indicating the inflammatory consequences of the tiniest hints at quick and painless sanctions relief.

The TSE continued its rally, albeit at a much slower pace on June 20—the first day of trading after the weekend but the exchange fell back into its slump on Sunday.

The nuclear news was followed on June 17 by a CBI report pointing to 3 percent growth for the Iranian year ending March 2015. However, the figure was widely suspected and could not have been the immediate cause for the rally. The CBI figure is also lower than the World Bank’s estimate of 3.7 percent growth in 2014, which was published on June 5.

The TSE has over the past year on a few occasions reacted heavily to political news related to the nuclear deal. The last time was in early April, when a nuclear deal framework was agreed upon in the Swiss city of Lausanne. A high, but suppressed and therefore explosive level of optimism among investors that the nuclear deal will end in Iran’s favor has been the recurring trend in each of these rallies.

Institutional investors in particular have been effective in directing these rallies to their advantage by buying large amounts of cheap shares. Last week, about 2.6 billion shares changed hands – an increase of 34.8 percent compared to the prior week. Weekly trade value, including rights offerings, reached $196.1 million to register a 62.7-percent surge.

The unpredictable volatility of stocks has been to the detriment of smaller traders who have often been caught by surprise. Last month, smaller traders gathered in front of the TSE to protest practices they believed stack the odds in favor of large, government-related companies.

The stock exchange has lost its steam since contractionary monetary policies of President Hassan Rouhani’s administration prevented the accumulation of wealth on paper but refocused attention on productivity instead. Profitability levels have fallen and firms have tried to brighten up their balance sheets with non-productive activities such as share trading and finance.