Stocks soared to record highs on Tuesday, on the busiest day for Iran’s equity market in history, as a surge in bullish bets pushed up both of Tehran’s equity markets.
Optimism over the lifting of sanctions on Jan. 16, following the implementation of the Joint Comprehensive Plan of Action, has triggered a huge appetite for shares. The ensuing rally has erased half of the losses shareholders incurred during the preceding two-year bear market.
Iran’s main stock market, Tehran Stock Exchange, capped 3.19% or 2,415 points and ended its fourth day of consecutive gains at 78,199.10 points. The equity market’s main index, TEDPIX, is at its highest since March 8, 2014. Since the lifting of sanctions, TSE has surged 14,682.2 points or 23.1%.
Trading volume on the equity market hit an all-time high on Tuesday. Over 3.91 billion shares were traded. TSE’s previous record was 2.12 billion shares traded on 22 Dec. 2013.
The Iran Fara Bourse over-the-counter market kept course with the TSE, though it was less volatile.
Petrochemical companies, which make up IFB’s bulk, have been slow in their upward move. Low oil prices are suppressing their gains. Benchmark index, IFX, rose 1.63% to 828.55 points–the index’s highest since Dec. 24, 2014. Tehran Oil Refinery Company was the market’s leader, up 2% for the day.
> Likely Snapback
Although market moves were erratic, there was an insatiable demand for shares in the morning and shareholders sold their stocks rapidly.
Most of the trading on market heavy weights was done at a 5% premium—the market’s maximum volatility limit—to the market’s open.
Later in the last minutes of trading, some stocks dipped as much as 3% as some traders locked profits, signaling the market may be in for a correction in the near future.
Namely, Tejarat Bank, one of the largest banks in Iran, had 301 million of its shares traded. Over 156 million of those shares changed ownership at 1,309 rials. This is while the bank’s last trades were 2.73% lower than Monday’s market close at 1,213 rials. The bank closed 3.77% higher based on the day’s average trading price.
> A Bridge Too Far
However, market watchers were skeptical of the moves. Many warned of a forming bubble. There is “exaggerated” demand from individual investors, they said.
Pundits are skeptical because transparent and robust sectors like pharmaceuticals and petrochemicals have been lagging in performance during the current rally. And banking and autos have been rising on unspecific rumors.
“I am not saying the markets are not forward looking. But, the JCPOA is not that big of a deal. Currently shares are moving up too fast. If the rally carries on at this speed, then there will be a bubble. When the market rises over 20% and some automakers have doubled, you are stretching into overreaction,” said Ali Khosroshahi, Amin Investment bank’s senior analyst.
> Dubious Risers
TSE’s auto index has jumped over 60% since the JCPOA, all due to demand and news of deals with French and German automakers.
Meanwhile, Iran’s second largest carmaker, SAIPA, is undergoing restructuring as part of Article 141 of the commercial law. The company’s retained losses are more than half of its capital today.
However, there were 2 trillion rials worth of buy orders for its shares on Tuesday.
Another group that is up 20% to 30% while global demand for its goods is at record lows are miners and steelmakers.
“Miners and steelmakers had nothing to do with the JCPOA. Their product prices have plummeted, yet they are rising,” said Khosroshahi.
> Flood of Cash
A study by Maskan Investment Bank showed no money has gone out of the banking system or the bond market. Fixed income mutual funds’ holdings have gone up 27 trillion rials to 453 trillion rials in the 11 days to the end of January, when stocks were going up. So investment in bonds has actually increased.
“The source of the money that is causing the rally is unknown to us. Bond investments have grown. Foreign investment is not that much either. So you have to ask where the record volume of trade is coming from,” Reza Qahremani, head of the bank’s asset management, told Financial Tribune.
“Furthermore, why are transparent industries, in which all the data are clear and available, not gaining as much as stocks that have only rumors or shady deals going for them? Pharmaceuticals and petrochemicals are lagging behind while autos are soaring.”
The foreign exchange market was also in full swing. The dollar had fallen 1.1% to 35,300 rials by 11:01 GMT on Tuesday in Tehran’s foreign exchange market.
However, most bureau de changes were reluctant to trade. Even those willing to buy dollars or euros deferred their payments to the next day.
“The dollar’s fall is due to speculative deals and bureau de change trading is minimal. So the dollar may trim losses before the end of the day, as those deals are closed,” Seyyed Jalil Motahari, owner of Darik Coin in Tehran’s Mirdamad Boulevard, said in a phone interview.
Azadi gold coin’s 50,000-rial climb to 9,850,000 rials soaked up some of the money seeping out of the foreign exchange market.
The source of the rally and erratic market movements might be political, as we head into parliamentary elections, said sources. Someone might be propping up the market.
“If you look closely, the rally is moving from sector to sector. It first pushed up banking shares and then moved into autos and other industries. Some industries have been left out so far,” sources told Financial Tribune.
“We have to wait and see in whose hands this bubble will burst and how the market reacts in the run-up to parliamentary elections.”
The source did not want to be identified due to the sensitivity of the issue.
