Stocks at Rock-Bottom Prices, Yet No Buyers

EghtesadOnline: Most share prices have dropped to record lows, but fears of US sanctions snapping back and a discontent with foreign exchange rates seem to keep traders rooted in place.

News ID: ۷۴۵۲۵۵

06 May 2018

Currently, a total of 461 types of securities are being traded on Iran's capital market, 390 of which are shares in companies and investment funds.

Out of the 390, 41 shares have a share value higher than 10,000 rials ($0.23 per share), such as Khash Cement Company and Pegah Golpayegan Dairy Company, and 46 are priced between 5,000-10,000 rials ($0.11-$0.23).

Furthermore, 60 companies' shares are being traded between 1,000-1,500 rials ($0.02-$0.03) each, including Shahrood Cement Company, Shahed Investment Co and Bank Eghtesad Novin, Financial Tribune reported.

But it's at the very bottom of the chart that things get interesting, as 57 stock tickers are being traded at less than 1,000 rials ($0.02) per share. Not to mention a good number of them are so cheap because they're swimming in red ink. However, some of these companies, however, are actually posting profits, such as Bank Mellat, Bank Hekmat, Shomal Cement Company, Darab Cement Company, and Behshar Industries Group Investment Company.

With a slight amount of optimism, these shares can be great buy targets, as they seem unlikely to dip lower than this but are potent enough to grow.

Why are they not attractive to buyers then? One has to consider that TSE and IFB's total non-block trade value was only 3.48 trillion rials ($82.8 million) during the current Iranian month's second trading week (April 28-May 2), which is similar to numbers seen in the market about a decade ago.

"Reacting emotionally to economic developments is characteristic of the stock market and inevitable," Moharam Razmjooyi, the deputy head of Omid Investment Bank, told Bourse 24.

"In Iran, however, we usually overdo it, by either having too intense a reaction or becoming too conservative."

Tehran Stock Exchange's main index dropped over 2% in only two weeks and most industries are posting negative growth.

Iran Fara Bourse, too, is in the same boat, although with less pronounced fluctuations.

> Unfavorable FX Developments

The first factor, according to Razmjooyi, is the recent government-enforced US dollar rate to the rial.

"Last fiscal year, export-oriented companies had planned their operations with 37,000-38,000 USD/IRR rate. This is while this year, the government decided to unify all rates at 42,000 rials to USD. This is 10-12% higher than last year, but the general mood expected USD rates to have a sharper jump and has so far ceased to react favorably to the limited growth," he said.

After an uninterrupted months-long bull run last year (March 21, 2017-18), the government decided to finally put an end to the dual foreign exchange regime in early April. The move, alongside transferring bureaux de changes' responsibilities to banks and banning street currency trade, was meant to contain USD's meteoric rise to levels beyond 61,000 rials.

The USD/IRR rate is now effectively pinned at 42,000 rials, with official market observers, such as Tehran Gold and Jewelry Union refraining from posting any new prices on their website.

However, the greenback is being unofficially traded at more than 61,000 to the rial on the black market.

Therefore, it's rather sensible for the firms to not be very excited about the new rates. All their FX transactions and import and export orders have to go through the Central Bank of Iran's systems, so there's no dodging officials to get to the black market.

> Iran Nuclear Deal Concerns

The next contributory factor is the anxiety over the safety of Iran's biggest political and economic achievement in recent years, which is the 2015 nuclear agreement reached with six world powers.

US President Donald Trump, who has repeatedly criticized the international accord and promised in his 2016 election campaign to scuttle it, faces a May 12 deadline to decide whether to continue abiding by its terms.

If Trump does not extend the waivers on Iran sanctions, presumably on the CBI and oil exports, the deal would virtually cease to exist for Iran. The limited number of economic benefits Iran got from the deal would drop to zero, so would the Islamic Republic's reasons to stay in it.

The fear is well-manifested in the stock market's lethargy and the foreign exchange and gold markets' recent increased attraction for investors.

In fact, the prime example would be the FX market's upheaval in recent months. One of its many causes, including the burgeoning money supply, banking system's sorry state and lack of proper investment choices, pointed to by officials and analysts was the US rhetoric against JCPOA, highlighted by fluctuations in sync with Trump's sanction waiver deadlines.

Razmjooyi, however, believes the market is overreacting and the looming threat does not justify the comatose state of the market.

"We all remember that the stock market faced much more difficult days in 2011-12. And despite the criticisms we all have regarding domestic policies, we have to remember that Iran has a strong team on its international front. This much conservatism and lethargy in the capital market is simply unjustified," he said.

Only time will prove the veracity of this optimism.