Stocks Rally on Talks of Forex Policy Change

EghtesadOnline: Investors can finally imagine the government loosening its grip on the foreign currency market without being called dreamers. And with the prospect of change on the horizon, stocks have jumped.

News ID: ۷۴۵۷۳۳

29 July 2018

Early Saturday morning, investors saw headlines that the government is embarking on "Pumping FX to Secondary Market", as reported by Donya-e-Eqtesad, with the news announcing that the Money and Credit Council has decided to limit the 42,000-rial USD to imports of essential goods and medicines, and channel all FX earnings from non-oil exports to the secondary market.

In response, by the market's open, petrochemical, steel, iron, copper and aluminum stocks, as well as those of whatever investment company that has shares in them were selling like hot cakes.

Tehran Stock Exchange’s main index jumped by 3,077.83 points or 2.83% on the day's close to end at 111,877.9, according to Financial Tribune.

About 2.29 billion shares valued at $119.65 million changed hands at TSE for the day.

Persian Gulf Petrochemical Industries Company was unsurprisingly on the list of top TEDPIX boosters, followed by Mobarakeh Steel Company and National Iranian Copper Industries Company. Most other industries down the top 20 list were petrochem and metals.

The day's main laggards on the benchmark were Iran Khodro Group, followed by Mobile Telecommunications Company of Iran and SAIPA Group.

Iran Aluminum Company was the biggest winner, as its shares went up 21.5% to 2,458 rials per share. The main reason IRALCO was up, however, was that it reopened for trading after days of no fluctuation cap.

Sazeh Puyesh Company incurred the biggest loss among all TSE-listed companies and went down 5% to 16,778 rials per share.

Meanwhile, Iran Fara Bourse's main index IFX surged 42.6 points or 3.46% to close at 1,275.1. About 553.3 million securities valued at $39.56 million were traded at the over-the-counter exchange for the day.

The same industries as in TSE were up in IFB. Marun Petrochemical Company, Zagros Petrochemical Company and Esfahan Steel Company gave the biggest boost to IFX and Ghadir Petrochemical Company had the highest number of traded shares, as 279.53 million of its shares changed hands.

IFB's main losers were also Alborz Distribution Company, Day Bank and Caspian Tamin Pharmaceutical Company.

> Denials Pile Up

Donya-e-Eqtesad's report cited sources inside the Money and Credit Council and immediately faced backlash from officials denying the news.

For starters, Tasnim quoted a member of the council, Elias Hazrati, as saying that "the decision is not yet final" and that the "discussions are ongoing".

The news agency went on to cite an unnamed Central Bank of Iran official that the council "is yet to ratify a decision on this issue ... [and] forex revenues of petrochemical, steel and mineral exports have to be registered on the online Integrated Forex Deals System (locally known as Nima) to be used for imports of raw materials and equipment required by industries".

Echoing the same remarks, Ahmad Mahdavi Abhari, the head of the Association of Petrochemical Industry Contractions, dismissed the news and said "not only there is no decision but we have not even had any discussion on this yet".

Other officials neither confirmed nor denied the news.

"We still have received no official directive," said Saeed Mohebbi, financial and investment manager of Persian Gulf Petrochemical Industries Company.

"In any case, this is certainly good news and will positively affect petrochemical and steel companies. If it is true, we hope it's ratified sooner," Bourse 24 reported.

As evident from the above remarks, officials do not seem to be on the same page regarding the issue, while the report claims that it has definite proof.

A Bourse Press report indicates that the Securities and Exchange Organization is engaging with the authorities, which make sense. Investors have welcomed the news and there's historical precedent to back up their response.

The market was growing over the same theme about a month and a half ago when the rumors of the Secondary FX Market first mentioned by the head of Trade Promotion Organization, Mojtaba Khosrotaj. His comments were quickly dismissed by officials and rumors of any change in the forex policy were vehemently denied.

Yet in about a week's time, the secondary market was launched with much fanfare and touted as a bold change in FX policymaking.

As for the current issue, similar rumors had it that discussions are underway and bound to happen about four weeks before the Donya-e-Eqtesad report.

A petrochemical holding official had announced that large exporters were in talks with the government to enter the secondary market, and SEO Chief Shapour Mohammadi confirmed that the proposition was being considered seriously. The development received little media attention.

Amid all the contradictions, it is no wonder that investors would rather follow their gut feelings and unconfirmed news.

After all, if the past few months are any indication, the decision to pump dollars into the secondary market is more likely true than otherwise.