Markets Diverge as Rial Weakens

EghtesadOnline: Equities had a mixed week in Iran, as Tehran’s two exchanges diverged in direction while the rial further weakened in foreign exchange markets.

News ID: ۷۳۶۵۲۹

03 September 2016

The Tehran Stock Exchange continued its decline last week. Shares on the TSE have been steadily shedding value since the market hit a four-month peak on August 7. Benchmark TEDPIX lost 1.1% and ended at 77,167.9 points, a four-week low. Most of TSE’s losses came on Sunday, when the market lost 533 point of the week’s 913 point loss.

Iranian weekdays start on Saturday and end Thursday. Tehran’s two exchanges TSE and Iran Fara Bourse are closed on Thursday and Friday.

What liquidity there was, evaporated from the market with trade volume tanking 40% to 8.4 trillion rials ($236.5 million at Thursday’s market exchange rate) compared to the week before.

IFB’s Rise and Fall

Market conditions were favorable in TSE’s rival market, on the other hand. Shares on the Iran Fara Bourse advanced last week driving the market’s benchmark, IFX, up 1.3% to 809.27 points by Wednesday’s close.

The index reached a three-month high of 820.49 on Monday, but the market’s rapid climb during the week’s beginning prompted some investors to lighten their positions in the last two days of trade, bringing the index down 11 points and taking away half the week’s gains.

Trade volume on the IFB fell 14% to 6.7 trillion rials ($186.2 million) for the week. It averaged 1.3 trillion rials daily, with over a third of trading taking place on Saturday.

Chemical producers were in the vogue. Over a third of all the stocks traded were chemical producers, reports Financial Tribune.

Investors are cautiously eyeing the battle within government ranks about forcing petrochemical companies to sell their products on the Iran Mercantile Exchange. Supporters from the parliament and the IME say the market needs transparency, which sales through an exchange creates, curbing rent-seeking  opportunities. The plan has met continuous resistance from the oil and industry ministries. They think the nature of the petrochemical business prohibits the standardization of product for trading, and will just disrupt and complicate their sales.

Bond trading also plunged this week, falling by 33% to 2.5 trillion rials ($70 million) this week. High demand for bonds among institutional investors is taking a heavy toll on liquidity in bond markets. Also the small size of the market means trade volume surges when there are new offerings and plummets when there are not new bonds on offer.

The Rial Weakens

The greenback rose to its highest since the start of February last week. The US dollar rose 1.1% during the week and changed hands at 35,860 rials among Tehran’s traders on Ferdowsi Street by Thursday’s market close.

The Central Bank of Iran continued with its policy of weakening the rial’s exchange rate against the dollar this week. The bank wants to close the gap between official and market exchange rates.

The rial slightly weakened on Wednesday and one dollar was sold at the bank at 31,256 rials by Thursday.

CBI officials have promised to abolish Iran’s dual exchange rate regime before March next year. The bank overshot its previous target which was to unify the exchange rate regime by August.

Spotlight on the Quasi-State

The parliament passed a bill on Sunday mandating state organizations, both government and non-government, to disclose their financial information to the Securities and Exchange Organization. The bill sets penalties for noncompliance.

“If these institutions do not disclose their economic information to the SEO, their bank accounts will be frozen, the national registry will not provide them with services and they will be fined,” Mohammadreza Pourebrahimi, head of the Parliament’s Economic Commission, told Securities and Exchange News Agency (SENA).

The Rouhani administration has been pushing for more transparency in quasi-state organizations which have so far been exempt from paying taxes or revealing their activities to the public.

They control an estimated third of the economy though some analysts say the figure is much higher.