Iran Stocks Bow to Systematic Risks

EghtesadOnline: Systematic risks have caught up with the Iranian stock markets. Concerns regarding base metal prices, based on a stronger dollar and an escalating trade war between the US and China, sunk metal stocks' fortunes in Iran as its main drivers, augmented by the government's refusal to allow the sale of commodities at an exchange rate other than the enforced one.

News ID: ۷۴۵۶۶۴

21 July 2018

Metal producers and miners were at the forefront of Tehran Stock Exchange and Iran Fara Bourse's speeding growth earlier this month and its decline in the last two weeks have all but sapped stocks of their strength to rebound.

Overall, TSE's all-share index TEDPIX, shed 1,728.5 points or 1.57% during the week that ended on July 181 to close at 107,776.6.

Iran Fara Bourse’s benchmark index, IFX, wiped 15 points or 1.2% to stand at 1,210.8, according to Financial Tribune.

TSE's base metals and mining indices have dropped over 8% and 10% respectively in the last 14 trading days.

In short, investors are abandoning metal stocks since their products' pricing at Iran Mercantile Exchange is based on the official 43,500-rial USD/IRR rate with only a 10% fluctuation cap. With global prices falling, companies are even less inclined to sell, despite the surging local demand, making them less likely to continue growth. Those purchasing the commodities on IME are the main winners.

The commodities' status quo is largely expected to remain the same in the short run. Escalating US-China trade tensions–with the EU recently joining in–are stoking fears about global growth and with it metals' demand to wipe 15% off Bloomberg's industrial metal index from its June peak. The market narrative could change and prices recover after the US mid-term election in November.

There is no shortage of concerning news on other fronts either. With companies' general meetings at their traffic peak, industries are notifying investors of bumps in the road ahead regarding looming sanctions and issues with the exchange rate.

According to our sister publication Donya-e-Eqtesad, certain petrochemical firms have told investors that they've already started hitting roadblocks in money transfer and product marketing, and that things could worsen post-August 6, when sanctions officially kick in.

The much-celebrated Secondary Forex Market launched last week has yet to make a meaningful difference for most companies and help raise profits. Only a limited number of businesses have so far succeeded in making transactions happen on the platform, firms told investors, and it's still unclear when more would be included.

Last but not least, latest auto production stats show that production has dropped by close to 20% in the third month of the year, Khordad (May 22-June 21), year-on-year.

A report by the Ministry of Industries, Mining and Trade shows the output of Iran Khodro and SAIPA–Iran's major automotive producers–dropped 23% YOY during the month. The downturn seems to indicate that the increase in raw material prices has finally caught up with automakers.

> Weekly Trade in Detail

Over 6.3 billion shares valued at $387.38 million were traded on TSE last week. The number of shares traded grew by 65% compared to the week before while trade value dropped 3.44%.

TSE’s First Market Index shed 2,241.7 points or 2.8% to end at 77,791.1. The Second Market Index rose by 1,124 points or 0.5% to close at 221,196.

And at IFB, over 1.3 billion securities valued at $245.1 million were traded, with the number of traded shares and trade value dropping by 25% and 9% compared to the previous week respectively.

IFB’s market capitalization also lost $345.8 million or 0.9% to reach $38.2 billion. This brings the cap's growth to 9.1% since the year began.

Its First Market witnessed the trading of 553 million securities valued at $6.4 million, growing 14% and 15% respectively.

About 1.37 billion securities valued at $11.1 million were traded in the Second Market, with the number of traded shares and trade value shrinking by 49% and 19% respectively.

Over 8 million debt securities valued at $166 million were also traded at IFB, with the number of bonds traded and trade value growing by 5% and 0.1% respectively.

However, the number of traded securities and trade value dropped 62% and 60% respectively for exchange-traded funds to reach 26 million worth $11.3 million.

Trade was up for housing mortgage rights’ trade, as it reached 420,000 securities worth $6.9 million, rising 24% and 23% respectively.