How is market sentiment in Iran’s first year in the post-sanctions era?
Our sister publication, the Persian daily Donya-e-Eqtesad asked 30 market analysts and 80 stock traders about their forecasts on stock performance in the current Iranian year (started March 20).
An overwhelming majority expects the market to outperform other assets and return over 20% this year. Competing assets have lost their allure and experts are optimistic about swift economic recovery in the post-sanctions era.
Traders are optimistic about the stock performance, though financial analysts are in agreement with them, with 80% of traders and 70% of analysts surveyed betting on stocks.
The next market they look to is bank deposits. But only 20% of analysts see stocks outdone by interest rates.
However, there are some analysts and traders who believe stock and money market performance will be overshadowed by yet another currency devaluation.
“The government has had little worry about foreign exchange rates, as it gained access to billions of dollars of its foreign exchange reserves, previously blocked by sanctions, and has even managed to reverse the rial’s weakening trend,” says Homayoun Darabi, a market analyst.
“This year, the rial will resume its decline, as foreign reserves from the nuclear deal dry up.”
But just how bullish were the people surveyed by the paper? Well, very much! Analysts are especially bullish about equities, with 73% of them expecting an over 30% return from stocks.
Traders were a bit more cautious. Over a third of them expect such lavish returns, while 41% of them expect equities to rise anywhere from 20 to 30%.
The returns are expected, by over a third of the traders, to come from the automotive industry.
However, analysts were more divided on which industry would lead gains in the current Iranian year. Around 18% of them see pharmaceuticals as the year’s best bet, though an almost equal number agrees with traders on autos. Banks were analysts’ third and traders’ second choice.
“Pharmaceuticals is one of the industries that will respond the quickest to sanctions relief,” Davoud Fesahat, an analyst, said. “Access to L/Cs and other financing, and the resulting drop in financial costs and their cost of raw materials will be their main drivers [of profitability].”
As for volatility, two out of five respondents predict automotive shares to be the most volatile and prone to overreaction. One out of five groups surveyed expected petroleum-related shares to show the most volatility during the year, as crude oil finds its new normal.
Nevertheless, some concerns remain. Growth was expected by two-thirds of those surveyed in both groups to come in the second half of the year. Respondents expect companies to post poor earnings in the first two quarters, as they struggle with the legacies of a half a decade of crisis.
Moreover, global commodity prices remain weak, further threatening the revenues of Iran’s heavily commodity-driven companies.
Also, banks remain reluctant to cut interest rates further, as they vie for more liquid assets to keep their lending going.
“Considering the recession in the country and declining inflation, further decline in bank interest rates is not expected, and rates may very well start to climb again in the coming months,” says Vali Nadi-Qomi, chief executive of Novin Investment Bank.
As for the significance of each issue, half the traders focused on reports of poor quarterly earnings, while nine out of 10 dismissed the significance of global developments, putting interest rates second on their worries list.
Analysts, however, were equally concerned by global commodity prices and earnings reports.
