Stocks Stutter Against Bonds in Tehran

EghtesadOnline: T ehran stocks’ attraction is further dissipating, as the debt and foreign exchange markets take centre-stage and new political risks sour equity traders’ sentiment.

News ID: ۷۴۵۱۰۳

17 March 2018

All eyes are now set on the next fiscal year (starting March 21) to inject new blood into equities on the back of a further devaluing currency.

TSE’s main index TEDPIX shed 1,334 points or 1.4% during the week that ended on March 14 to close at 95,525.9. The index had dropped about 1.1% during the week before last, wiping a large part of its gains in the past month.

Fluctuations were less pronounced at the smaller over-the-counter exchange market Iran Fara Bourse. Its benchmark index IFX added 0.2 points or 0.04% last week to stand at 1,080.6, according to Financial Tribune.

For the past two months, bond issuance in the debt market has broken all previous records in terms of volume. It has grown 30% year-on-year during Dec. 22-March 14 to an unprecedented level of 80 trillion rials ($1.66 billion), according to the Persian economic daily Donya-e-Eqtesad.

This volume of debt issuance–most of which are Islamic Treasury Bills–coupled with the Central Bank of Iran’s looser monetary policies, has caused yields to reach up to 23% for two-year bonds. This is while yield to maturity for most bonds averaged 15% in mid-December.

Stocks have a hard time producing any returns and are naturally battered by competition.

CBI’s issuance of one-year certificates of deposit with 20% rates initiated a chain reaction that led to rising bond yields. And now, with yields exceeding deposit rates, lenders are expected to boost their rates in response. This seems even more likely, considering that banks are already having a hard time and desperately need the extra cash to keep running.

> 2 Banks Return to Drag TEDPIX Down

In a major highlight at TSE, two major banks’ frozen stock tickers reopened on the exchange on Wednesday after a year and a half. What followed didn’t surprise anyone: The banks’ share prices nosedived and dragged down TEDPIX along the way.

Bank Saderat shares were being traded at 1,005 rials each on July 19, 2016, just before being barred from trading by the Securities and Exchange Organization due to a delay in the release of financial details. It dropped 49.25% to 510 rials on Wednesday, basically wiping half of its investors’ capital.

Bank Parsian's fate was slightly better. Its trading symbol was frozen on November 5, 2016, with its shares being traded at 1,145 rials. Its Wednesday reopening saw the price dropping 10.24% to 1,026 rials.

Saderat was the main burden of the day, as it bled TEDPIX by 717.7 points, and Parsian was also a 69.73-point laggard. The two bank’s unruly return accounted for over half of TEDPIX’s total losses for the week.

> New Year, New Risks

Investors might have their hopes up for improvements in the next fiscal year, but systematic risks are looming and have intensified in recent days.

In May, US President Donald Trump is set to announce whether he will certify the 2015 Iran nuclear deal or refuse to waive sanctions on the Islamic Republic. The latter means effectively kick-starting the US exit from the landmark deal, otherwise known as the Joint Comprehensive Plan of Action.

Everyone is preparing for the worst-case scenario. Iran is in talks with the EU to keep the deal intact and is at the same time trying to find alternatives to trading with the US dollar.

What intensified risks last week was that Trump fired his Secretary of State Rex Tillerson, ousting one of the last defenders of the nuclear deal in the White House. What’s worse, he’s going to be replaced by current CIA Director Mike Pompeo, an Iran hawk who also shares Trump’s distaste for the Iran deal.

If anything, it will be even harder to keep the deal from falling apart next year and it will certainly affect investors’ sentiment in the next two months.

> Euro, Dollar Keep Pushing Forward

CBI’s measures to contain gold and foreign exchange markets’ rally last month did prove effective at first, but forex rates now seem to be bouncing back.

Euro, gold and the US dollar are all circling close to their all-time highs reached late last month and most of the gains came last week and the one before.

Euro has the largest of gains last week, followed by Bahar Azadi gold coin, the US dollar, IFX and TEDPIX.

Euro still tops the charts in terms of gains made  so far this fiscal year (ending March 20), followed by Bahar Azadi gold coin, the US dollar, TEDPIX and IFX.

The rial was quoted at 59,100 against euro by Thursday’s close, according to Tehran Gold and Jewelry Union’s data. It marked a whopping 5.17% rise for the European currency.

Euro’s gains so far this year has reached 43.72%, having started the year at 41,120.

TSE and IFB have posted a 24% and 23.4% gains so far this year, respectively.

The US dollar gained 1.3% against the rial last week to 48,490. The dollar’s gain so far this year has reached 29.37%, having started the year at 37,480.

As for gold, Bahar Azadi gold coin gained 2.9% last week to 15.96 million rials. Its gain so far this year stands at 36.29%.

> Weekly Trade in Detail

Over 12.58 billion shares valued at $436.7 million were traded on TSE during last week. The number of traded shares and value grew by 97% and 45% respectively compared to the week before last.

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

TSE’s First Market Index shed 1,275 points or 1.9% to end at 67,433.7. The Second Market Index also dropped by 1,127 points or 0.5% to close at 205,629.7.

And at IFB, over 2.32 billion securities valued at $960.1 million were traded, with the number of traded shares dropping by 8% while trade value jumped 89% compared to the previous week.

IFB’s market cap gained $1.63 billion or 6% to reach $30.54 billion.

Its First Market witnessed the trading of 1.31 billion securities valued at $64.45 million, indicating a 752% and 865% surge in the number of traded securities and trade value respectively.

About 467 million securities valued at $29.33 million were traded in the Second Market, with the number of traded securities and trade value dropping by 57% and 32% respectively week-on-week.

Over 43 million debt securities valued at $836.1 million were also traded at IFB, surging by 106% and 105% in the number of bonds traded and their value respectively.

Exchange-traded funds, however, dropped 74% in trade number and 44% in value to reach 40 million worth $12.1 million.

Housing mortgage rights’ trade was down, as it reached 25,000 securities worth $3.56 million, marking a drop of 30% and 29% respectively.