Bears Prevail Over Iran Equity Markets

EghtesadOnline: Tehran Stock Exchange fell for the fourth week in a row, as bearish sentiment persisted in equity markets.

News ID: ۷۳۶۸۰۶

10 September 2016

Benchmark TEDPIX shed half a percent for the week to 76,742.2 points by Wednesday’s close, as trade volume fell to its lowest in nine months, TSE data show.

Iranian weekdays start Saturday and end on Friday. Stock exchanges TSE and IFB are closed on Thursday and Friday.

The market’s decline was, as before, slowed by large trades between major pension funds and their investment companies. Major institutional investors trade large chunks of heavyweight stocks in between each other at a premium to prop up the TEDPIX. The action is called block trading in Iran and is akin to market manipulation. Many pension fund chief executives claim they are stabilizing the market.

Iran Fara Bourse also fell this week. IFB’s main index, IFX, was down for the second week. It lost 0.8% to 803 points by Wednesday’s close, the exchange’s data show. The IFX had tumbled 2% the week before.

Trading shrank even further, as liquidity evaporated from the market. IFB’s trade volume dipped 40% to 4 trillion rials ($113 million at market exchange rates). Most of the fall in volume came from a 48% drop in bond trading in the market to 1.6 trillion rials.

Countering Money Laundering Sparks Feud

An agreement between the Iranian government and the Paris-based Financial Action Task Force, which aims to counter money laundering and terrorist financing, sparked a row among Iranian officials this week.

The central bank introduced measures in March to bring Iranian lending standards more in line with those of FATF, a move that had been urged by the International Monetary Fund. As a result, the task force on June 24 suspended “counter-measures” against Iran’s banking system for 12 months.

On Saturday, the Persian Keyhan newspaper published photos of letters purportedly sent by two lenders, Bank Mellat and Bank Sepah, declining to serve companies and individuals working for a conglomerate owned by the Islamic Revolutionary Guard Corps. The newspaper made similar claims about other lenders and blamed them on agreements with FATF, reports Financial Tribune.

The news made Economy Minister Ali Tayyebnia deny the validity of Kayhan’s claims two days later on national TV. Members of the Anti-Money Laundering High Council also issued a statement on Tuesday, saying all cooperation with FATF was based on Iranian anti-money laundering laws passed in the fiscal year that ended on March 2008. The council denied that cooperation with FATF would jeopardize the financial security of Iranian organizations or that it had led to any of the criticism leveled by Kayhan.

The governor of the central bank as well as ministers of economy, intelligence, interior, foreign affairs and industries make up the anti-money laundering council.

Earlier, Ali Akbar Velayati, the head of the Center for Strategic Research of Expediency Council, criticized cooperation with FATF and said the Task Force “is not to the benefit of Iran”, ISNA reported.

While the accord between Iran and world powers removed a host of economic sanctions, global banks have been reluctant to do business with the Islamic Republic for fear of running afoul of remaining US curbs against organizations, such as the IRGC.

IME Wins Over Petrochemical Producers

The Competition Committee gave a verdict in favor of mandating petrochemical producers to sell their products on Iran Mercantile Exchange on Wednesday, IRNA reported.

With this verdict, the committee may have ended a four-year tug of war between the parliament and the Ministry of Industries, Mining and Trade.

The plan’s designers in the parliament said it would bring transparency to the petrochemicals market and cut out intermediaries.

The plan met resistance from the oil and industries ministries and petrochemical producers since its introduction in 2012. Opponents said the nature of the petrochemical business prohibits the standardization of products for trading on an exchange. Products and contracts are usually tailored for each customer’s needs and usually include after-sales services. These cannot be incorporated into standardized contracts. Thus, the mandate will damage the industry’s sales and business model, drive up costs and shut some consumers out of the market.

The committee answered most of the Industries Ministry’s worries, though questions about after-sales services remained unanswered.

IFB to List Cooperatives

The Securities and Exchange Organization unveiled regulations last week that will allow cooperatives to be listed on IFB. Cooperatives are institutions owned and operated by their members.

SEO regulations will give publicly owned cooperatives the opportunity to sell shares on IFB. The move was widely publicized by SEO-owned SENA and other state media.

The maximum stake any company or individual can hold in IFB-listed cooperatives is capped. Public companies can own up to 10% of a listed cooperative while private companies can own half of that. Individual ownership of listed cooperatives is capped at half a percent.

Article 44 of Iran’s Constitution stipulates a 25% share for Iran’s cooperatives in the gross domestic product. However, this share now barely exceeds 5%, officials say.

According to deputy minister of cooperatives, labor and social welfare, Hamid Kalantari, non-oil goods worth more than $1.7 billion were exported by the cooperative sector in the last fiscal year (March 2015-16).

“We are trying to increase this year’s exports to $2.5 billion,” he added.

Over 1,500 new cooperative units were established in the first five months of the current year (March 20-August 21), creating 18,000 jobs, ISNA quoted Kalantari as saying.