Economy, Business And Markets

Risk Aversion Prevails in Iranian Market

Risk Aversion Prevails in Iranian Market
Risk Aversion Prevails in Iranian Market

Risk aversion prevailed as Iranian investors cashed out of risky assets and moved toward the haven of foreign exchange and gold on Wednesday.

Iranian markets showed a cautious first reaction to the signing of a historic deal between Iran and P5+1—United States, Russia, Britain, France, China and Germany—that would ensure the peaceful nature of Iran's nuclear energy program in exchange for sanctions relief.

The dollar along with other major currencies extended their gains against the rial for the second day, as equities fell on Tehran's two exchanges.

"Investors want to wait for the US Senate's review and the signing of the UN resolution," Reza Qahremani, chief executive of Bourse24 market analysis website told the Financial Tribune in a phone interview.

"Most of the optimism is already priced in, and we are seeing a correction. Look at Bank Saderat, its shares rose over 25% in the month up to the deal. How much further could it go?" he asked.

The US dollar rose 0.81% to a day high of 32,540 rials by 1231 GMT on Wednesday pushing other currencies higher against the rial, while Tehran Stock Exchange's main index ended its six-day rally in 0.87% fall to 68,827.70 points by the session's close.

Iran is approaching a three -day bank holiday that marks the end of the holy month of Ramadan. The long holiday has prompted investors to lock in their profits from the nuclear deal.

"Risk-averse investors are cashing out. They don't want to be exposed to any political developments," said Qahremani

Temporary Reactions

Other major currencies gained much more than the greenback against the rial demand outstripped supply. Trading was mainly done by individuals with companies postponing trading till after the holidays.

The euro surged 2.24% to a 10-day high of 36,500 rials by 1231 GMT on Wednesday, while the pound jumped 2.62% to 51,100 rials, a two-week high.

Skepticism and prudence were the order of the day in the bureaux de change .

"The pressure on the dollar was temporary. There are no sellers, and trade volume is low," said Jalil Motahhari, the owner of Darik Coin and a veteran bureau de change owner, to the Tribune.

"The deal will take a year to bear fruit and until then, supply of foreign exchange will remain constrained."

Too Much Risk

Stocks were on sale in Tehran's equity markets, as investors preferred short-term speculative gains to long-term investing.

The TSE fell 0.87% dragged down by banking heavyweights Mellat, Pasargad, Saderat and Tejarat. Shares of petroleum companies also lost value.

Shares on the Iran Fara Bourse over-the-counter market also tumbled, with petrochemical producers leading the losses. The exchange's main index IFX lost nearly 1% and ended the day at 811.14 points.

"The risk in the market is too high for its expected returns, leading to more speculative trading strategies," Ali Khosroshahi, Amin Investment Bank’s senior asset management and investment analyst, said in an interview.

"Most investors are moving with caution, as positive expectations have been exhausted, and you will find sellers at every price level.

"Analysts have been stung throughout the milestones of the deal," he said, referring to overreactions and losses sustained by many investors after the extended deadlines and interim deals led to the final deal.