US-China Trade War Worries Push Down Stocks in Iran

EghtesadOnline: Comatose for most of the week, Tehran stocks took a hit on Wednesday as the prospect of a full-scale global trade war drove panicked investors into a selloff.

News ID: ۷۴۵۶۲۹

14 July 2018

A heavyweight petrochemical initial public offering the same day also came under fire, as investors believed it intensified the market’s losing momentum.

In fact, the wave of negative factors proved to be so overwhelming that certain positive developments, such as a tax cut for stock trading and exemption for capital increase, as well as the official launch of a secondary foreign exchange market, failed to boost the market's sentiment.

Overall, TSE's all-share index TEDPIX shed 2,985 points or 2.7% during the week that ended on July 11 to close at 109,501, according to Financial Tribune.

Iran Fara Bourse’s benchmark index, IFX, lost 27.04 points or 2.1% to stand at 11,225.79.

TSE and IFB had already started the week with significant drops of 1% on Saturday, while the next three days proved to be slow as investors kept a watchful eye. Wednesday, however, saw the two indices drop 1.21% and 0.95% respectively to an eight-day low.

Base metal producers had the most pronounced downticks in both markets. As for TEDPIX, National Iranian Copper Industries Company was the primary laggard behind the benchmark’s fall, followed by Mobarakeh Steel Company. At IFB, Hormozgan Steel, Zangan Zinc and Esfahan Steel had the primary negative impact.

> A Trade War in the Making

The administration of US President Donald Trump announced another round of tariffs on Chinese goods worth $200 billion late Tuesday, ramping up the US-China trade war.

The move comes after the US imposed 25% tariff hikes on Chinese goods worth $34 billion on July 6. Beijing immediately responded with its own tariffs on US goods worth $34 billion.

Tuesday’s action makes good on a threat Trump made last month. He directed US Trade Representative Robert Lighthizer to identify $200 billion in Chinese goods for tariffs, if China retaliated against US penalties that are meant to punish the country for intellectual property theft, CNN reported.

The retaliatory tariffs that China enacted on Friday targeted US cars and major agricultural goods, such as soybeans and meat.

China's Commerce Ministry said on Wednesday that the Trump administration's announcement of new measures was "unacceptable". It warned that China would have to respond with "necessary countermeasures" without providing details.

The United States is already working on a second wave of tariffs on Chinese goods worth $16 billion. The tariffs announced on Tuesday would be the third wave. They would go into effect sometime after August 30.

Consequently, copper prices slumped to their weakest level in a year and zinc fell to 13-month lows amid a broad global selloff, Bloomberg reported.

Three-month copper on London Metal Exchange dropped as much as 3.8% to $6,092.50 a ton, its lowest since July 25 last year. Zinc was also hard hit, with the metal dropping by its 6% downside limit in Shanghai, and falling as much as 4.8% to $2,503 in London, the lowest since June 15 last year.

> IPOs: For or Against?

Pars Petrochemical Company’s initial public offering on TSE stirred up a lot of money and heated arguments on Wednesday.

For starters, trade value for the week’s first four trading days amounted to about $400 million. This is while the money that went into buying its shares on Wednesday exceeded $285 million, highlighting the firm’s attractiveness for investors, the Persian publication Donya-e-Bourse reported.

Over 308 million of the company’s shares were traded, with the final price reaching 24,000 rials per share, a 2,300% growth compared to their Wednesday open.

Tehran’s stock traders have not always been fans of IPOs. While shares are falling, some hold that a public offering would accelerate the downward trend. When stocks are in a rally, others contend that an IPO should not suck in all the money in the market and dampen the rising trajectory.

The week’s actual performance, however, shows that there could actually be a good thing for the market. Pars’ trading statistics show that a lot of money, which had not gone into other shares, was waiting for the offering. And being its first trading day, Pars had no effect on TEDPIX.

The fact that the IPO coincided with a broad selloff day is unlikely to justify the criticism.

> Secondary FX Market, Stock Trading Tax Cuts

Alongside the turmoil in stocks, parallel markets were dealing with important developments. The long-awaited secondary forex market finally started working on Tuesday, and with it, signs of calm surfaced in the unofficial FX market.

Rial was being traded at around 80,000 to the US dollar for the past three weeks, but the first impact of the official secondary FX activity brought USD/IRR rate down to about 75,000. The benchmark Bahar Azadi gold coin also followed suit, as it dropped close to 1 million rials during the week to 25.7 million rials on Thursday.

Also, a Supreme Council of Economic Coordination meeting on Saturday, attended by the heads of the three branches of power, decided to offer tax breaks on equity trade and exemption on raising capital.

Financial transaction tax (FTT) paid by the selling side on each equity trade was cut from 0.5% to 0.1% for the next 12 months. It was also decided that if companies funnel their retained earnings toward raising capital and use it for expansion, the capital raise will be exempt from income tax.

> Weekly Trade in Detail

Over 3.8 billion shares valued at $401.2 million were traded on TSE last week. Both the volume and value dropped by 45% and 7% respectively compared to the week before.

TSE’s First Market Index lost 2,576 points or 3.1% to end at 80,032.9. The Second Market Index dropped by 3,993 points or 1.8% to close at 221,196.6.

At the IFB, over 1.7 billion securities valued at $269.5 million were traded, with the number of traded shares and trade value dropping by 26.4% and 1.62% compared to the previous week respectively.

IFB’s market capitalization also gained $32 million or 0.1% to reach $38.93 billion

Its First Market witnessed the trading of 237.7 million securities valued at $11.44 million, dropping by 52% and 53% respectively.

About 908.9 million securities valued at $40.5 million were traded in the Second Market, with the volume and value shy 48% and 53% respectively.

Over 7.6 million debt securities valued at $165.9 million were also traded at IFB, with the number and value of bonds dropping 24% and 26% respectively.