Economy, Business And Markets

Stocks Stuck in Free-Fall

Stocks Stuck in Free-Fall
Stocks Stuck in Free-Fall

After last week's rout, Tehran Stock Exchange started a new week on Saturday with major market index dropping to a new low since July 3, 2014.

TSE traders seem to be wondering whether summer selloff would continue to push TEDPIX further down or upbeat economic news may shift the market's negative sentiment.

At the end of trading hours on Saturday, TSE main index (TEDPIX) plummeted 299.1 points or 0.41 percent to finish another downward trading day at 71,822.4.

According to the TSE website, market's main indices spent the day pressing TEDPIX, as first market index retreated 241.6 points or 0.46 percent to 52,814.1. Second market index gave up 455.7 points or 0.32 percent to 141,897.3. Free floating index slipped 447.2 points or 0.55 percent to 80,900.6. Industry index inched down 256.6 points or 0.42 percent to close at 60,811.3. Blue chip index also shed 13.4 points or 0.4 percent to 3,309.6.

More than 324 million shares changed hands, valued at 839 billion rials, lower than the last day of past week (Wednesday, September 3).

Tehran stocks fell sharply Saturday, cementing its monthly losses as investors backtracked from regional unrest and country's ongoing recession on valuation concerns.

TSE's nervous investors eye the latest developments in Iran's nuclear talks, which are directly associated with lifting part of the US-led sanctions against Tehran. Lifting sanctions could lead to bringing back the bull market, and therefore, has been the most crucial factor in changing the negative trend, which has been dominating the market for quite some time. 

Since 2010, sanctions have been strengthened after the nuclear dispute between Iran and the west intensified.

The Rouhani administration has successfully rolled back the negative pace of economic growth and subsequently stimulated a growth rate of 0.5 percent in the first three months of the current Iranian year (ending June 21), Government Spokesman Mohammad Baqer Nobakht said in August. 

The government is determined to practically reinvigorate the national economy, partly through a strategic plan devised to reinforce the capital market, the Securities and Exchange Organization in particular. Besides, the government's plan of action to exit recession is another concrete step to push Iran's economy back to the path of growth.

With the stocks having fallen mostly through the year, the newly released government plans, aimed to finance big companies and boost the capital market, appear to have failed to gain investors' trust so far. 

Equity Market Major Challenges

- US Sanctions

On August 29, the United States penalized a number of Iranian and other foreign companies, banks and airlines for allegedly violating sanctions against Tehran, largely tied to the country's nuclear program.

The fresh US sanctions have weighed on the equity market here as shaky investors believe the move is the most crucial challenge on the way of Iran's economic recovery.

Iranian industries are grappling with financial problems and in the whole, the capital market is suffering from illiquidity as a result of western sanctions.

Iran is an emerging market for foreigners but money transfer is a serious impediment for those investors who want to buy and sell stocks at TSE.

- Regional Unrest

The regional unrest, mainly in Iraq and Syria, have ratcheted up in the past few months, leaving a negative impact on Iran's export to these countries. 

This challenge has worked as a brake to industry's production level and also to their earnings, causing their shares to lose value. 

- Recession

As an evident indicator to the country's slump, illiquidity is reigning over the country's major industries as they cannot provide their required cash flow.

Due to limited financial resources, it has been very difficult to fund businesses in Iran. Regarding the big industries, the government plans to provide them with finances through the stock market.

But, according to analysts, as long as the country's capital market is struggling with insufficient financial resources, the plan is not likely to succeed.

- High Banking Interest Rates

Iranian banks are a safe haven as they return a guaranteed high interest to investors' deposit. Given the dominant volatility at the equity market and its downward trend, investors prefer to keep their deposits in banks and get their monthly interest regularly instead of feeling shaky by bringing their capitals to the equity market. 

In an attempt to boost the capital market, the Central Bank of Iran is set to lower interest rates for short-term deposits, according to a report that was released by the CBI on August 16. An interest rate cut is likely to leave a psychological effect on both investors and firms.

It is hard to escape the conclusion that, right now, Iran faces plenty of challenges, including the sanctions and a persistent economic uncertainty. On the other hand, given the government's practical steps toward helping the economy, market analysts believe that, if sanctions are lifted, Iran will turn into a frontier market in the region.

Due to the sanctions, Iranian industries are grappling with financial problems and, on the whole, the capital market is suffering from illiquidity.