Direct Investment Seen as a Bane of the Share Market

EghtesadOnline: Iranians usually opt for investing directly in the stock market and are less inclined to let investment funds or asset managers to trade on their behalf. In most countries the opposite is the norm.

News ID: ۷۵۱۱۳۲

29 September 2020

Currently more than 80% of stock trade is handled directly by individual investors, according to Reza Kiani, the Tehran Stock Exchange’s deputy for research and development.

Kiani blamed the large presence of retail traders and ordinary investors on herding behavior now taking a toll on bourse in Tehran.

“Investment funds account for 5% of stock market trade. A stable market requires a bigger share of investment funds and discouraging direct investment,” he was quoted as saying by the Securities and Exchange News Agency.

“Investors prefer to trade directly… this is while [professional] trade in stocks demands expertise. It has its own complexities,” he added.

In the same vein, Rouholla Mirsane'i, head of the Securities and Exchange Brokers Association says equity investment penetration is high in many countries, investment in the market is largely indirect and through investment funds.

Investors in swarms rushed to the share market in the first few months of the current fiscal year (March- August) during market boom.

Too Many Codes

Data from the Central Securities Depository of Iran (CSDI) suggest that close to 3.58 million trading codes were issued for new investors since the beginning of the current fiscal year in March up until July end. This brought the total number to 15.25 million.

The figure is staggering given that on average 600,000 codes were issued annually in the past eight years. According to CSDI data, in the entire past fiscal year 822,000 trading codes were issued.

Riding on fresh liquidity brought by novice investors, major stock market indicators jumped to historic highs in a relatively short period.

The TSE’s main index, TEDPIX, grew 270% in little more than four months -- from 500,000 points in March to 2.2 million points in early August.

In the same way as they headed impulsively to buy shares, which led to a bubble in prices, the newcomers are now in a great hurry to sell causing share prices and market indicators to nosedive.

The government decision to remove the ban on trading the so-called ‘Justice Shares’ in April potentially enabled half a million people with little or no financial literacy to directly invest in the market.

Justice Shares are shares of big government-owned companies given to the six lowest income deciles a decade ago. The shares were given free and were not tradable until May.

Close to 49 million Iranians own the shares and need trading codes to sell in the stock market.  This means that the majority of the population will want trading codes, making placing Iranians among the top in the world in terms of percentage of stock ownership.