The Tehran Stock Exchange (TSE) wrapped up the week's trading days ending December 24 on a relative high note, with the overall index registering almost 0.95 percent gains, and recording the first positive week after five gloomy trading weeks.
A newly revealed report by the Central Bank of Iran this week showed that the economy grew by 4% in the first half of the fiscal year. However the recent oil glut has endangered Iran's oil based economy, with unsettled investors dramatically taming expectations on the expected earnings of the listed firms at the TSE.
Oil prices have slumped to fresh five-year lows and spooked both individual and institutional investors.
According to the Financial Tribune analysis, the TEDPIX nosedived almost 7.6 percent in the month ending December 21, amid speculations that a budget deficit will be likely for the next fiscal year starting March 21, 2015.
However, the equity market sentiment revised up within the past week. The TSE shrugged off to the market laggards, which have been rattling the stock market recently, after the benchmark hiked 659 points or close to 9.5 percent compared to the prior week, crossing the 70,000 barrier to settle at 70,153, TSE data indicates.
During the past week, most of indices managed to end in green, with the first market and second market rising 1.24 and 0.25 percent respectively compared to previous trading week. In addition, almost 2.2 trillion shares changed hands, valued nearly at 5.17 trillion rials, indicating a 12 and 18.5 percent decline compared to the prior week.
Moreover, 119,704 fixed income participatory bonds were traded in the week which only had three working days, priced at119 billion rials, demonstrating a 48 percent retreat.
Investors’ unsettled sentiment after the extension of nuclear talks between Iran and the P5+1 as well as plunging oil prices have triggered massive selloffs within the past two months.
Moreover, recent fluctuations in forex market significantly contributed to the lineups at the equity market, with investors trying to get rid of the shares losing value on a daily basis. Instead, they flocked to the forex market to reap the benefit from the fluctuations.
Due to the historic low Price Earning (P/E) ratio at the TSE, possible administration policies aimed at offsetting the lost oil revenues have created glimmer of hopes that the equity market is likely to get a boost soon. The TSE’s gauge uptrend proved estimations to become true although ambiguities are still lingering at the market.
Industries Monthly Performance
The wobbly economy in the month ending December 21 heavily weighed on the listed industries at the TSE, accompanied by dramatic plunge of the benchmark.
Only four industries successfully managed to post gain among total number of 36 industries listed at the TSE, Donyay-e Eghtesad reported. Electric devices, metal products, oil products, and transportation equipment were up by a 21.9, 17.6, 0.8, and 0.4 percent respectively. While paper commodities, coal and mines were market laggards by a 28, 27.2, and 20.6 percent downbeat performance respectively.
The economic hardships have led many firms to default on their debts. Moreover, global slump in raw material and economic slowdown across the globe have endangered the performance of relative companies, with slashed expectation on their earnings.
Blue Chips
The TSE will reveal top 50 firms at the equity market every quarter and in accordance with their contribution to the benchmark, number of trades, and their shares’ liquidity. According to TSE data, as the uncertainties are lingering at the stock market, 50 leading and widely held stocks underperformed within the months ending December 21.
Among top 50 firms, only 4 companies were safe haven for shaky investors, though the rest of the firms posted gloomy performance. The blue chips always portray the equity market’s atmosphere, as most of veteran investors tend to track them in a bid to estimate the further performance of the stock market.
Systematic Risks
The government eyes tighter spending and collection of more tax in the upcoming year to compensate falling oil prices in recent weeks. However, speculations over the administration’s contradictory policy among other factors have intensified ambiguities at the equity market.
Uncertainties surrounded the administration budget including the status of mine royalties and petrochemical feedstock pricing could negatively affect the equity market. Given the vital contribution of mining and petrochemical industries to exports, a transparent policy will likely boost trade in the said sectors.
Banking interest rates could also have impacts on market investors, as lower rates can encourage more investment in the equity market. Interest rates are correlated to the country’s inflation. This is why no palpable step has so far been taken to cut the high interest rates in Iran. Iran’s limping economy is being buoyed by cut in expenditures and is not prepared yet for a concert move to drop banking interest rates.
Dissolution of sanctions over a comprehensive agreement between Iran and the P5+1 is considered as the greatest remedy for the daunting crisis lies in the balance sheet of companies.
Another factor heavily weigh on the economy is the negative sentiment in oil market. Plunging oil prices have severely endangered oil-based economies, namely Iran’s. The administration proposed almost $70 a barrel in the next year’s budget, while negative fluctuations may impose more threat to the economy.
Saudi Arabia, the OPEC’s largest producer, is probably assuming an oil price of $80 a barrel for its 2015 budget, Bloomberg reported on Friday. Saudi Arabia’s assumption of oil at $80 a barrel is sending a message that the Saudi government expects a price rebound in the near future, which could be good news for the Iranian market as well.
Taming Negative Expectations
Despite the economic hardship spooked investors, there are implicit indicators that the persistent bearish trend won’t dominate the equity market, while the TSE may not notch previous record highs in the short run.
According to TSE data, the average P/E ratio is now almost 5.3 points, while the average P/E in Iran’s stock market was not below 6 points. The unprecedented opportunity to garner undervalued shares has arrived. Lots of shares are now being traded below their nominal values over irregular selloffs due to unofficial speculations about industries’ performance in the mid run.
Given the fact that the 70,000-point mark is being set as a floor for the benchmark, there is even no need wheeling and dealing with insider information.
Almost 50 percent of the listed firms’ performance is associated to their export. Hence, the group of export-based companies may easily shift the sentiment. Raw material and foreign currencies fluctuations are important leverages for the stock market.
The global economy slowdown may trim expectations on tangible earnings of exporters, however higher rate of foreign currencies is likely to offset their loss in some extent.
To conclude, dramatic oil plunge is a double edged sword for companies being dependent on oil as with the fall in oil prices the companies can benefit from rise in foreign currencies’ value. So in Iran, the companies can manage an imminent crisis if they take proper measures.
