Economy, Business And Markets

Brokers on the Brink

Brokers on the BrinkBrokers on the Brink

Iran’s 101 brokerages are struggling to get out of the red. The over two-year slump in equities, as a result of years of recession and multiple crises, has sapped their earnings.

Investors have flocked to banks to save their money, leaving the stock exchanges with a trading drought. In fact, many brokers are on the brink of bankruptcy. Yet, their eyes are pinned to the not-so-distant future when sanctions will be removed.

During the first nine months of the current Iranian year (started March 21), more than two million investors traded over 116 billion shares on Tehran Stock Exchange, according to Bourse Press.

Trading volume is not much different from last year, during which 146 billion shares were traded. Volume will probably reach the same level by the yearend.

However, TSE has hovered near two-year lows for much of this year, in turn bringing down the value of trading, upon which brokers make their commission. The value of trading in the first three quarters of the year has dipped 55% compared to all of last year.

The 116 billion shares traded in the first three quarters of the year were worth 225 trillion rials. In contrast, the 146 billion shares traded during the 2014-15 fiscal year topped 500 trillion rials in value.

Iran’s main equity index, TEDPIX, fell 1.6% to 61,518 points on December 21, from its 62,531-point level at the start of the Iranian year. Optimism about the deal between Iran and the six world powers led to a rally to above the 70,000-point mark, but soon evaporated, bringing TEDPIX to a two-year trough where it has stayed for much of the period.

Iran and the P5+1–Britain, China, France, Russia and the United States, plus Germany–reached a historic agreement in July.

Iran agreed to mothball parts of its nuclear works ensuring the exclusively peaceful nature of Iran’s nuclear program. In exchange, all nuclear-related sanctions set by the United Nations, the European Union and the US will be removed as early as 2016.

  Waning Stars

In this gloomy market, the hold of the top 10 brokers on trading has weakened. They handled 40% of total trading, worth 90 trillion rials, in the first three quarters. Last year they handled half the trading.

There has been some reshuffling at the top of the food chain. Mofid and Khobregan Saham robbed Saba Tamin and Bank Melli’s brokerages of their top two positions.

Mofid took the crown by handling 14 trillion rials or 6.5% of all the transactions, while Khobregan remained close on Mofid’s heel with a 6.4% share of trading.

Saba Tamin, Behgozin, Pasargad, Agah, Azad Iranian, Pars Gostar Khobre, Hafez and Saderat brokerages were the next eight, each handling between 5.1% and 2.3% of all stocks. Saba Tamin, a subsidiary of the Social Security Organization, was the overlord of brokers last year with an 11.9% share of trading.

Bank Melli’s brokerage has done poorly this year. While it handled 11.1% of transactions the year before, it did not make Bourse Press’s top 10 list for the period.

State-controlled brokerages have an edge over private players in the equity market. Most of the current trading is done by their parent companies, affording them an unfair advantage.

  Lasting the Winter

The picture at the bottom is even worse. Many brokerages are on the verge of a bust though none has exited yet, according to the secretary of Securities and Exchange Brokers Association, Rouhollah Mirsanei.

The downtrend in the TSE is expected to continue well into the next year. However, the lifting of sanctions will do much to revive the equity market.

Corporate earnings will rise as import/export costs drop with the normalization of banking ties. Foreign investment will pour in, first as liquid investments and later as direct investment.

In many less sensitive industries, like food processing, multinationals will resume their business with Iran, giving rise to competition and transfer of management practices. Nestle, for example, has been present in Iran for years and automakers are keen on catching the eyes and imaginations of its 80-million-strong population keen on motoring.

The government will also gain access to its frozen assets—around $85 billion with $30 billion ready for immediate use, according to the Central Bank of Iran—aiding it in its management of Iran’s economic recovery.

All of these mean a sizzling stock market. So brokers that last this winter will thank their good fortune for the blooming opportunities.