The government decision to lop four zeroes off the national currency could have some positive impact on the stock market, analysts say.
The move would seemingly have little influence on the fundamental factors affecting share prices, but it is the psychological effect rising from a perception of lower share prices that counts.
Iran’s parliament passed a law Monday based on which the rial will be replaced by the commonly used toman. As per the law, four zeroes will be removed from the national currency.
The CEO of Tehran Stock Exchange, Ali Sahra’ee, says insofar as stocks are concerned a positive pattern can emerge after the law comes into effect. However, he adds that the impact would essentially be psychological and short-term.
“To the extent that share prices are lower in the view of investors, they may perceive a lower risk and be more inclined to invest,” he was quoted as saying by the Securities and Exchange News Agency.
The impact would be more significant on the price of shares not doing well on the sell side, Sahra’ee said.
Recalling that removing zeroes per se will not have much of a positive effect on the economy, he noted that “if such a move is accompanied by other [reform] plans, then we could be hopeful about a positive impact on economy.” He did not elaborate.
Saeed Eslami, secretary general of the Iranian Institutional Investors Associations was rather non-committal to the change in denomination, but said “All said, it won’t have negative consequences on the stock market”.
In the same vein, Mostafa Omidqaemi, a former CEO of Iran Fara Bourse, predicated that the redenominating can have positive mark but “this will depend on psychological climate” due to the fact that share prices “will adjust” to new currency unit.
Omidqaemi says the move may also influence investors’ approach to the bourse due to its reflection on financial statements of listed companies because profit and loss figures will appear too small in the assessment of investors.
On a rather different note, Vali Nadi Qomi, a market analyst, pointed to the possibility of such moves pushing up consumer price inflation, which by extension could also push up share value.
The decision to remove four zeroes could have dual effect on the stock market, he said. In the short term it may boost the market due to ensuing inflationary outlook but the market will gradually pause when the inflation factor fades away over time.
Redenomination is not something that will happen in no time flat. Governor of the Central Bank of Iran Abdolnasser Hemmati said Monday the process will be gradual and take 2-5 years.
Provisions of the law stipulate a maximum two-year ‘transitional phase’ during which both the toman and rial will be legal tender.
