Stocks at Historical High as Forex Open Market Returns

EghtesadOnline: Bulls are reigning over Tehran equity markets just as foreign exchange, gold, housing and stock markets have all recorded unprecedented gains.

News ID: ۷۴۵۵۳۴

26 June 2018

Recent changes in government forex policy are also expected to boost stocks to lead the pack.

Tehran Stock Exchange and Iran Fara Bourse hit yet another historical high on Monday to defy all analysis of their rallies running out of steam.

What set up a springboard for stocks' Monday rally was President Hassan Rouhani finally allowing exporters and importers to trade forex at negotiated rates instead of government-enforced ones, leading to the birth of the FX market, according to Financial Tribune.

"This was long on the agenda of the administration's economic team, but the president insisted on there being only one rate–42,000 rials for each dollar ... The team finally convinced the president," a banking official with knowledge of the meeting told Mehr News Agency.

The Central Bank of Iran's governor also confirmed the market's details on Monday noon and said it will be launched next week.

Valiollah Seif also said the market will be made up of 20% of non-oil exports mostly conducted by the private sector and that trade will be done at negotiated FX rates.

Private sector officials had hinted at such a plan taking shape days before, yet all rumors regarding the new FX market configuration were forcefully denied by government officials, including Seif.

The news instantly affected the markets. USD, unofficially trading at around 90,000 rials on Sunday, dropped to around 80,000 on the black market, as the development would enhance USD supply. Gold coin, too, was down about 7% from 30 million rials to about 27.7 million rials, Donya-e-Bourse reported.

However, stocks moved in the opposite direction, as the prospect of FX open market return spells higher profits for export-oriented firms and increased transparency for others.

TSE's primary index, TEDPIX, gained 2.78% or 3,113.24 points to hit 115,174.5. This is the index's ninth winning day in a row, second-best single-day growth ever and a new all-time high record.

And the smaller IFB's main index, IFX, grew 2.29% or 29.54 points to 1,317.34 on its 10th straight winning day, marking yet another historical high.

There's more! TSE on Monday saw trade value reach 9.57 trillion rials ($227.85 million), only 360 billion ($8.57 million) of which were block transactions. This is the market's highest trade value in 50 months.

Unsurprisingly, base metal and petrochemical stocks topped the TSE table. Mobarakeh Steel Company, Persian Gulf Petrochemical industries and National Iranian Copper Industries Company gave the biggest boost to TEDPIX.

Same was true for IFB. Zagros Petrochemical Company, Middle East Mines and Mining Industries Development Holding Company and Hormozgan Steel Company had the biggest impact on IFX.

Trade at Iran Fara Bourse stood at 1.24 billion shares valued at $86.7 million.

Stocks were being showered with cash even before the recent Forex developments. The key phrase here is "injection of wandering money supply", uttered by nearly every analyst and official for the past week or two.

In short, there's a whole lot of money out there–incubated for years over high deposit interest rates–that has wreaked havoc in whatever market it could enter. It has ravaged through forex, gold and real estate–to a lesser extent–since mid-last year, when the maximum interest rate was cut down to 15% from 20%.

Latest Central Bank of Iran statistics put the money supply at 15.3 quadrillion rials ($364.2 billion) by the end of the last fiscal (March 21, 2017-18), having grown 22.1% year-on-year.

Having gone through everything, it only made sense to channel the money toward stocks, especially since the market fundamentals were looking good. In fact, the money surge toward FX and the national currency's devaluation against the US dollar made stocks look like bargains. Some analysts believe that the equities' rally will at the very least continue until shares recoup their losses in USD terms.

Stocks are already in a good place. The return of the FX open market, despite all it would do to stabilize forex, will further augment equities' rally.

Note that those who supply foreign currencies to the market are listed on the exchanges.