Economy, Business And Markets

Diversity Helps Create Dynamic Stock Market

Diversity Helps Create Dynamic Stock Market
Diversity Helps Create Dynamic Stock Market

Diverse financial derivatives are necessary for making a vibrant stock market. These tools can increase the number of buy and sell orders for each price, thus pushing the market depth higher.  

“Options can stimulate trading in capital market through the miscellaneous choices they provide to stock traders,” stock market investor Amirhossein Erza said.

Any new financial derivative that comes to the market needs the approval of Tehran Stock Exchange Council before being officially traded on the floor.

TSE traders and investors feel happy only if prices go up, Erza said. “But in an active market, there’s always a portion of traders who feel very happy when stocks lose value.”

“Secondary market traders are in direct relationship with one another, but they have different views on trading and different predictions about ups and downs. There would be no trading and no secondary market if it were otherwise. This is where an investor expects a certain stock to gain while another investor anticipates drop in the value of the same stock. And here’s when stocks get traded.”

 Short-Selling and Options Trading

It’s possible that short-selling is introduced to the TSE if the process is approved by the relevant officials. Investors who sell stock short typically believe the price of the stock will fall and hope to buy the stock at the lower price and make a profit. 

Not long ago, there were lines of sellers and buyers at TSE and Fara Bourse (Tehran’s over-the-counter stock market). “This is no longer a problem as the market has started to offer new options for trading,” Erza said.    

Regarding the options trading, Erza said that there are generally two types of options traders at TSE. “The first group is made up of buyers, while the second group comprises financers who just publish the options. Among buyers, there is a large subgroup of speculators, who usually have no intention of exercising the option contract, which is to buy or sell the underlying stock. Instead, they hope to capture a move in the stock without paying a large sum of money.”  

Erza also pointed to the Rouhani administration’s policy of boosting the capital market, adding that the plan of action to exit recession calls for a 60 percent increase in the banking system’s share in financing the capital market, mainly through providing working capital to the businesses.

“But such a financial activity should not result in an increase in credit risk exposure for the banks,” he warned.

Erza said that a high depth of market would encourage businesses to turn to capital market for financing as a good alternative for banks.

“One way to do this is by adding enough free floats to the trading floor.”

5,000 Industrial Contracts Terminated

Almost, 5000 contracts related to the work at industrial parks have been terminated, Eghtesad News quoted the contract manager of Iran Small Industries & Industrial Parks Organization as saying.

Mohammad Yari asserted that the contracts of those units who have already imported machinery will not be terminated and they will be funded by the government.

“We decided to shut down substandard units to prevent them from posting more losses.”

Out of 70,000 contracts for industrial parks across the country, 5,000 were terminated due to lack of working capital, liquidity, disagreement among partners or shortage of raw materials.

Last year, ISIPO examined 2,500 contracts comprising industrial parks covering 1,500 hectares of land. Consequently, contracts for 500 hectares of land were terminated and the contractors working on another 1,500 hectares were given a deadline to address a wide range of problems in order to be allowed to continue operating those units.

The high number of semi-finished plans and subpar enterprises are among the major challenges facing the government of Hassan Rouhani.

A government spokesman recently said there are around 3,000 semi-finished industrial park construction projects in the country. The government has plans to establish 50 to 60 industrial parks by the end of the Fifth Five-Year Economic Development Plan (2010-2015).

According to ISIPO chairman, Mohammad Ali Seyed Abrishami, of a total of 929 industrial parks approved to be established across the country, 731 have so far become operational.

“The previous administration [of Mahmoud Ahmadinejad] approved the establishment of some 270 industrial parks, while the cost of investment could be justified for only 60-70 of those projects,” he said. Abrishami criticized the Ahmadinejad government’s order for employment of an “unreasonably” large number of individuals in small enterprises and industrial parks.

ISIPO had 740 employees in 2005, but the organization’s workforce reached 3,450 in 2014. Additionally, out of 81,000 small and medium enterprises (SMEs) nationwide, 31,000 are located in industrial parks.

More than 14,000 such enterprises were shut down over the past decade, 69 percent of which ceased operations in the past eight years (during  Ahmadinejad’s two-term as president).

“Presently, 70 percent of the country’s small and medium enterprises are struggling with shortage of liquidity, while the rise in foreign currency rates, sanctions and a mismanagement of the subsidy reform plan have accelerated SME shutdowns,” Abrishami concluded.