Where Are TSE Stocks Headed?

Tehran Stock Exchange had a rapid growth last week, as it not only reached its all-time high record, but also zoomed past two 1,000-point channels.

It has also had the highest return on investment among all markets since the beginning of the current fiscal year (March 21).

TEDPIX gained 1130.40 points or 1.27% to end Saturday trading at an all-time high of 90,469.5. The previous high of 89,500 was reached by TEDPIX back on January 5, 2014. The daily growth was the highest in 13 months.

Now, the main question puzzling market observers is that where will the market go next?

To find the answer, Donya-ye-Bourse conducted a survey with 107 stock traders and 25 market analysts to predict TSE’s path forward up until the end of the current fiscal year (March 2018).

Most of the respondents predicted the TSE benchmark to have a steady upward movement by the Iranian yearend.

Interestingly, none of the analysts anticipated a declining trend for the market, while some of the traders expressed concerns about TEDPIX correcting its gains.

Donya-ye-Bourse is a stock market information services launched by the Tehran-based media corporation Donya-e-Eqtesad in December 2016.

The website at www.donyayebourse.com provides corporate, industry and macroeconomic analysis and news ranging from trade data to corporate briefings. It covers both qualitative and quantitative data, news and figures.

The service, whose name literally means “the world of bourse”, aims to provide critical information to securities market players instantly.

It has a polling section where investors and analysts predict the next market trend every week. The feature is based on a similar service provided by Kitco.com, a world-renowned website on precious metals.

 Steady Growth

About 88% of participant analysts believed TEDPIX will continue its steady growth for the rest of the year. They forecast global prices, the growth of which boosted stocks, to either continue rising or remain at their current high levels. A continuously devaluing currency will also help the process. The index will not spike, analysts believe, considering the still-lingering lack of liquidity and the already high level of share prices in certain industries.

About 59% of participant traders also forecast the same trend. Emphasizing the unprecedented high level of share prices, they predict investors to gauge market movements with caution. Yet positive factors will still keep stocks an attractive investment opportunity.

 Potential Lethargy

Some 8% of analysts believed TEDPIX could technically drop down to its last high of 89,500 or even lower, but impactful stocks–which brought about last week’s growth–will prevent the index from dropping, resulting in a phlegmatic trend until the yearend (March 20, 2018).

Political risks about the fate of Iran nuclear deal can also reinforce this notion.

About 21% of traders also echo the same remarks. They hold that stocks’ growth since Q2 has been supported by significant global price jumps, and going any further than this will require new incentives such as positive movements in Iran’s macroeconomic indicators.

Four percent of analysts and 21% of traders forecast TEDPIX to continue its uptrend with a sharp trajectory. They argue that reduced deposit interest rates will inject new money into the capital market, which will potentially buoy all shares, considering their already better-than-expected performance so far this year.

 Price Correction and Trend Reversal

The last group of participants considers last week’s growth and the rise before it to be simply based on traders’ excitement, one that will soon die down.

The group, which consists of 8% of traders and none of the analysts, point to looming political risks as the primary factor shifting the market trend and argue that investors are currently ignoring them because of the dominant wave of optimism.

Once the optimism sinks, political factors will kick in and high share prices will flash sell signals–leading to TEDPIX’s drop.

 What the P/E Ratio Shows

Things have slowed down at TSE for the past two days. The low average trade value seems to indicate that political ambiguities are preventing investors from making new moves in the market and react favorably to positive developments.

That can be deduced from the fact that the price to earnings ratio of the market indicates a high number of risky shares.

According to the latest data, TSE’s P/E ratio grew 0.15% in the last Iranian month (Oct. 23-Nov. 21) to reach 6.77. This is while 64% of TSE’s 325 stock tickers showed a P/E higher than the month’s average.

Two scenarios may unfold with that information in mind, Donya-e-Eqtesad reckons. If market P/E ratio manages to stay at the current level and no liquidity enters the market, capital could potentially shift from shares in the high P/E tier to more attractive and less risky shares, namely the large-cap market makers.

If new money comes in, however, the ratio is going to be buoyed across all industries and shares.