Stocks Sink as Investors Seek Refuge in Safe Havens

Over the past week, Iranian stocks wiped nearly all the gains made in the last two weeks over growing political risks and market ambiguities.

Tehran Stock Exchange’s main index TEDPIX shed 1,970 points or 2% during the week that ended on Jan. 3 to close at 95,292.5.

The benchmark index of the smaller over-the-counter exchange Iran Fara Bourse shed 27.3 points or 2.5% during the same week to stand at 1,055.3.

Stocks were headed for a correction after a month-long rally that saw TEDPIX and IFX hit new highs over favorable global commodity price growths and promising corporate performance.

The boom’s inevitable bust came on Dec. 25 and caused TEDPIX to shed 1,147 points up until Saturday.

It turned into a full-scale freefall on Sunday with the TSE benchmark recording its biggest drop since March 2015 and dropping 1.7% on a single day. Stocks were reeling for the rest of the week as even large-scale institutional buys could not sustain a rebound and trade volume remained moderate.

> Political Risks Abound

Iran had a turbulent week. Over a dozen people were killed and over 400 were arrested in protests all over Iran, including the capital, Tehran.

It started in the city of Mashhad reportedly over economic woes and spread to more cities with protestors’ chants turning against top state officials, prompting security forces to intervene.

Markets unanimously anticipated the incoming systematic risks and entropy ensued: gold and forex rates climbed fast, housing market dropped further into recession and retailers had even less demand due to the unrest on the streets.

Bad news come in waves, with the new American sanctions on Iran seen as a precursor to US President Donald Trump’s attempt to walk away from the landmark 2015 nuclear agreement.

The US on Thursday placed sanctions on five subsidiaries of an Iran industrial group allegedly considered key to the production of ballistic missiles, the Washington Post reported.

A senior White House official also told BBC that Washington is considering imposing sanctions on Islamic Republic of Iran Broadcasting and Telecoms Minister Mohammad Javad Azari Jahromi.

Trump is to decide by January 15 whether to recertify Iran’s compliance with the nuclear deal, which he decided not to do in October. He must also decide whether to waive US nuclear-related sanctions that were suspended under the landmark agreement. If he decides not to waive sanctions and to reimpose them, the US would be violating the commitments it made and, in effect, walking away from the agreement.

> Investors Turn to Safe Havens

Tehran foreign exchange and gold markets witnessed price uptrend not witnessed since 2012, as investors turned to safe-haven investments.

The rial was quoted at 43,240 to the US dollar in the open market by Thursday’s close, marking a 2.87% weekly rise for the greenback. USD had reached an all-time high of 44,200 during the week, before CBI started to pump hard currency into the market as of Tuesday.

Fluctuations were more severe for euro as it gained 8.31% or 4,210 against the rial to reach 54,850 during the week. The European currency had also hit a high of 55,450 rials on Wednesday.

As for gold, Bahar Azadi gold coin grew 5.35% over the week and closed Thursday at 14.55 million rials, according to Tehran Gold and Jewelry Union’s website.

Stocks were 2017’s leading market in terms of returns on investment, but gold and forex seem to be catching up over the new developments. In the absence of systematic risks, a devaluing currency would have meant accelerating growth for stocks. But now, it only translates into siphoning liquidity from equities.

Stocks, however, have always responded to forex market developments with a lag, raising hopes for next week as most market capitalizations will be devalued and prices need to grow to rebalance.

> Weekly Trade in Detail

Over 6.9 billion shares valued at $361 million were traded on TSE during last week. The number of traded shares and trade value grew by 33% and 17% respectively compared to the previous week.

Trading at Iran’s stock markets starts on Saturday and ends on Wednesday.

TSE’s First Market Index lost 1,480 points or 2.1% to end at 68,069.8. The Second Market Index dropped by 2,364 points or 1.1% to close at 206,682.7.

And at IFB, with a 21% share of weekly trade, base metal shares were the market leaders, followed by chemicals with 19% and insurance and pension funds other than social security with 9%.

More than 2.27 billion securities valued at $171 million were traded at the over-the-counter exchange. The number of traded shares grew by 47% while trade value shrank by 2% respectively week-on-week.

IFB’s market cap shed $136.8 million or 0.5% to reach $28.54 billion.

Its First Market witnessed the trading of 403 million securities valued at $13.48 million, indicating a 103% and 56% surge in the number of traded securities and trade value respectively.

About 739 million securities valued at $35.58 million were traded in the Second Market, with the number of traded securities rising by 2% and trade value shrinking by 18% week-on-week.

Over 3 million debt securities valued at $66.97 million were also traded at IFB, rising 3% and 1% in the number of bonds traded and their value respectively.

Exchange-traded funds, however, dropped 27% and 17% in terms of share volume and value to reach 92 million worth $25.86 million.

Housing mortgage rights’ trade was down too, as 300,000 securities worth $5.86 million were traded, down 14% and 15% respectively.