Economy, Business And Markets

Return of Bull Market

Return of Bull Market Return of Bull Market

Tehran's markets have responded well to Iran's reconnection to international trade.

The foreign exchange market adjusted first, even before sanctions were lifted on January 16 and has been in relative calm ever since, as we move towards the Iranian yearend on March 19, with companies closing their books and balancing their accounts.

Stocks, however, have staged an unprecedented rally.

Equity indices on both the $82.3 billion Tehran Stock Exchange and the $14.2 billion Iran Fara Bourse are at record highs. They sped up their climb since the start of January after international sanctions were revoked from Iran's nuclear energy program and Iran's President Hassan Rouhani went on a deal brokering spree in his tour of Europe.

TSE's main index TEDPIX climbed 15% this January to a 13-month high of 71,011 points. The benchmark index has gained 9.4% since the lifting of sanctions. It was hovering near two-year lows a couple of months back.

Markets are forward looking and investors have smelled the scent of the incoming boom in the economy.

Although crude oil, Iran's main source of revenue, is at record lows and the global economy is slowing down, Iran's economy is so underutilized that just bringing the corporate sector back to normal, pre-sanctions activity will bring Iran 5-6% growth.

Add to that the incoming foreign investments from Europe and Asian investors desperate to find growth in a weak global economy, plus falling commercial costs fueling a boom in trade.

IFX has gained 10.6% so far this year and 6.3% since the nuclear deal took effect. The IFB benchmark closed at its highest since August 17 last year on Wednesday. It weathered the two-year bear market better than the TSE, so its rebound has been more contained.

Another reason for its smaller gains is that the IFB is weighed in by petrochemicals, which are seeing a pickup in their exports though  much less than anticipated.

The global glut in supplies has pulled petroleum prices down 70% since mid-2014.

> Onrush of Deals

On January 25, Iranian President Hassan Rouhani embarked on a European tour, where he met with Italian and French leaders and corporate chieftains such as Fiat Chrysler CEO Sergio Marchionne and Total CEO Patrick Pouyanne.

During the four-day trip, Rouhani signed multibillion-dollar deals with companies ranging from Italian oil and gas contractor Saipem to France’s Airbus.

Up for grabs is access to a market with about 80 million people and an annual output of some $400 billion, making Iran the biggest economy to rejoin the global trading system since the Soviet Union broke up over two decades ago, Reuters wrote.

Some businesses, such as French shipping line CMA CGM and Evergreen of Taiwan, have already reestablished ties with Iran after Tehran signed a deal with world powers in July to limit its nuclear program in exchange for sanctions being lifted.

So far, major corporations from several countries, including China, France, Germany, Greece, Italy, India, Oman, South Korea, Switzerland, Turkey and the UK, have either signed deals or are looking into deals with Iranian companies, according to a fact box by Reuters.

> Nothing Has Happened!

Some pundits are already ringing alarming bells and talking of a bubble, saying nothing has actually happened. Hasn't there? Deals are being made, doors have opened, oil exports are picking up and Iran suddenly feels like a business destination.

Yes, companies have to take some time to repair the damage from years of isolation and a two-year deep recession, and get back on their feet.

Iranian banks, perhaps most crucially, will have to adjust to tougher international regulations and need to offload non-performing loans into a "bad bank" to pick up where they left off when sanctions were imposed almost four years ago.

The banks will be crucial to deal-making and cash flow, as Iran seeks to win business from foreign firms and attract investment to upgrade its infrastructure now that curbs have been lifted on its banking, insurance, shipping and oil sectors.

But the share prices will not wait for that to actually happen; they will have more growth to deal with in the coming years.

As Kardan Investment Bank's chief executive, Majid Zamani, aptly said a while back, "the real growth will come in 2017, when companies return to stable, rapid growth. That's when long-term investments start to pay off."

So while the market may take a breather approaching the Iranian yearend, the bull market in equities is probably here to stay.



TSE Gauge Up 6.6% in Weekly Trade

Tehran Stock Exchange’s all-share index TEDPIX jumped 4,449 points or 6.68% during the week that ended January 27 compared to the prior trading week to end at 71,011.

Close to 11.4 billion shares valued at $601 million were traded in 641,000 transactions, recording a dramatic growth of 63.8% and 68.2% in weekly trade volume and value compared to last week respectively. The number of transactions rose 44%.

According to TSE data, the First Market Index jumped 3,648 points to close at 49,416 and the Second Market Index gained 6,468 points to reach 156,969, posting a 8.05% and 4.30% rise compared to the previous week respectively.

Furthermore, over 4.7 million participation bonds worth $132 million were traded, indicating a 645% and 645.6% growth compared to the previous week’s figures.

The mining sector had the highest share of market transactions with 74.74%, followed by metal products with 17.78%, printing and publishing 17.14%, auto and auto parts manufacture with 15.06%, and rubber and plastics sector with 14.04%.

> IFX Surges

Iran Fara Bourse’s overall index IFX gained 37.4 points or 5.2% to post 756 during the same week, posting its highest rise since July 2015.

Over 1.8 billion securities valued at $293.1 million changed hands in 210,000 transactions, according to IFB.

Weekly trade volume grew 21% compared to the previous trading week, while trade value posted an 8% decline. IFB’s market cap also gained $1.06 billion or 4.7% to register $23.6 billion.

More than 376 million shares worth $31.02 million were traded in the First Market, filing a 101% and 39% growth in weekly trade volume and value respectively. The Second Market witnessed the trading of over 1 billion shares worth $80.1 million to record a 9% and 26% growth in volume and value respectively compared to last week.

Chemicals, oil products, pharmaceuticals and transportation companies experienced the highest trade value and share price increases of the week.

The base metal sector accounted for the highest share of IFB’s weekly transactions with an 11% share valued at $12.6 million, followed by banks and credit institutions with a 10% share worth $12.1, and electricity, gas, steam and hot water providing companies with an 8% share to the tune of $9.5 million.