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Experts expect the strong gain to be short-lived, as there is no tangible economic incentive for investors.
Experts expect the strong gain to be short-lived, as there is no tangible economic incentive for investors.

Stocks Welcome Rouhani’s Reelection

Tehran Stock Exchange’s benchmark index ended Saturday trade 733.40 points or 0.91% higher to close at 81,077.6
Auto and petrochemical shares, including those of heavyweights Iran Khodro, SAIPA and Persian Gulf Petrochemical Industries, were at the forefront of Saturday’s momentum

Stocks Welcome Rouhani’s Reelection

The stock market acts like the economy’s barometer. From a slight movement in a company’s balance sheet to international stimuli, it detects and reacts to them all, whether they are already in motion or in the making.
Hence, when stocks gain, things are probably looking good and if they lose, there is a problem.
It can be said then that the market’s significantly positive performance just a day after a fiercely contested presidential election race came to a close signifies that stocks like the results: the reelection of Hassan Rouhani.
Iran’s Interior Ministry officially announced Rouhani the winner on Saturday at 2:40 p.m. He won 23,549,616 or 57% of all the votes. His main challenger Ebrahim Raeisi came second with 15,786,449 or 38.5% of the total ballots.
Rouhani’s four years in office are defined by the landmark July 2015 nuclear deal with world powers, aimed at attracting foreign investment and reviving a stagnant economy.
Tehran Stock Exchange’s benchmark index ended Saturday trade with 733.40 points or 0.91% higher to close at a six-month high of 81,077.6. The main index of the smaller over-the-counter Iran Fara Bourse gained 11.74 points or 1.28% to reach the all-time high of 927.31.
Auto and petrochemical shares, including those of heavyweights Iran Khodro, SAIPA and Persian Gulf Petrochemical Industries, were at the forefront of Saturday's rising momentum.

Short-Lived Enthusiasm

It's a usual pattern in Iran. A positive political development takes place, boosts the psychological factor and gets traders up and cheering while the index grows in the process.
The growth will not last long, however, as it is not backed by any real economic uptrend.
“The growth is, of course, mostly due to the election results but it will be short-lived, as there is no tangible economic incentive for investors,” Ali Khosroshahi, Amin Investment Bank’s senior asset management and investment analyst, told Financial Tribune.
“Even if the growth does continue, it will lead to a price bubble. We will witness corrections soon, I believe.”
The market expert also attributed auto and petrochemical shares’ rise to the size of companies, which can rock the market with every move, in addition to the two sectors’ tendency to cash in on market fluctuations.
Shahin Cheraghi, the head of Mehr Afarin Stock Brokerage Company, attributes the growth to the uncertainty and hesitation of certain big-cap companies and investors during the election season.
“They kept their cards close to their chest until the preliminary results were announced and then resumed trading,” Cheraghi was quoted as saying by IRNA.

 More Stability on the Horizon

The main thing the Rouhani administration is able to do and will do for the capital market is to shield it from both political and economic systematic risks, Khosroshahi believes.
“A relative peace, coupled with lack of unnecessary fluctuations and fake growth, is what made the markets stable. Many investors were not so happy with how the economy was doing, but stability eventually prevailed,” he said.
Khosroshahi expects the government’s “moderation” will push the economy toward growth and keep macroeconomic indexes up, though it will not be high and rapid, due to the unfavorable global conditions and the considerable amount of lingering domestic difficulties.
Certain US sanctions on Iran are still in place, making a full resumption of international banking relations significantly difficult.
On the domestic front, the cash-strapped government is unable to fully clear its debts to banks and, consequently, the lenders are unable to adequately fund businesses for expansion.
"Certain economic reforms are being implemented, however, and the administration’s economic future performance can be better forecast when new Cabinet members are announced," said Alireza Kadivar, the head of Tose’e Mellat Investment.
“None of the presidential candidates clearly communicated their economic policies to the public and we are not yet sure if any reshuffling will occur in the current Cabinet. If anything, we will have to wait till this year’s second half to gauge the impact on the capital market,” Kadivar said.

 

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