Tehran Stock Exchange finished another downward trading week, although it experienced two rallies, which brought hope that the equity market’s bearishness will be gone in the near future.
The TSE’s main index (TEDPIX) slipped 196 points or 0.27 percent to close the week at 71,927.1, while its upward trend on Monday and Tuesday failed to compensate its loss, and eventually the TSE ticked lower at the end of the week, according to the TSE website.
Among the market’s major indices, the free floating index and the financial index contributed the most to push the TEDPIX top the red.
Considering the performance of other indices, the first market index gave up 178 points or 0.34 percent to close at 52,877.2. The second market index lost 175 points or 0.12 percent to 142,176.7. The Industry index dipped 146 points or 0.24 percent to 60,921.7, and the blue chip index inched down 5 points or 0.15 percent to 3,317.9.
The total weekly trade value reached 5.046 trillion rials, indicating a plunge of 22 percent compared with last week ending September 3.
In the meantime, close to 1,843 shares changed hands, 26.5 percent lower than a week before. The number of transactions was recorded with a decent grow at 216,091, showing 2.3 percent increase.
A six week descending trend in the equity market indicates that Iran’s economy is still endangered and shaky. Due to the market’s grim view, unsettling investors initiated selling off to impede more losses.
Market Challenges
Iran’s commercial banks are currently grappling with at least $28 billion overdue loans, which severely limit their lending capacity. This has escalated the market slump.
Due to recession in the past couple of years, a variety of businesses have faced with cash flow problems or overdue loans. Since so many of these firms have already been listed at TSE, the equity market has been affected accordingly, and the stocks have lost their value.
But within a two-day rally, market experts are promising prosperous outlook as they believe TSE has potential to head back to its peak in 2013. But this time, contributing factors would be unlike in 2013, as in last year, hyperinflation and the currency collapse were the most significant factors.
Positive Outlook
The government has placed incomplete projects on its agenda. On the other hand, in line with that, the Securities and Exchange Organization has revealed a strategic plan which is aimed at reinforcing the capital market. Additionally, the Central Bank of Iran is considering further reduction in interest rate -- another attempt that could help boost the capital market.
The economic growth is on the path of stability although there is a long way ahead to project a complete bright future for the national economy. Officials have promised development and adopted policies to foster the equity market.
In Iraq, the so-called Islamic state or ISIL militants have evidently affected the market, as Iranian exporters faced challenges in their business with Iraqis. But the militant group appears to be weakening as a coalition is being formed in the region against it.
US President Barack Obama is relying on the Middle East allies including Saudi Arabia as linchpins in escalating the offensive against Islamic State extremists with airstrikes on both sides of the Iraq-Syria border, where the militants are stationed.
The move may alleviate Iranian exporters’ concerns as they could soon resume exports to Iraq.
Market Potential
Like other developing countries, Iran should initiate an attempt to attract foreign portfolio flows. Many developing countries have removed restrictions on foreign ownership, liberalized capital account transaction, and improved accounting and information standards.
As an approach to tackle financial problems, Iranian industries seek foreign investment though emerging market investors’ criteria should be taken into consideration.
Relevant industries should improve their accounting systems and clarify the information they disclose to investors. Transparency is a crucial key in every frontier market. Iran is a leading frontier market to Western investors.
As an instance, the equity market has recently adopted XBRL (eXtensible Business Reporting Language) standard and had the listed companies respect it, an attempt that would help foreign investors have a better understanding of the Iranian companies.
Market’s negative trend in the past few weeks is not a solid indicator of bearishness in the equity market, analysts say, expressing hope that nuclear talks with six world powers would soon bear fruit.
