1st Currency ETF in the Pipeline

EghtesadOnline: The Iranian capital market’s first foreign currency exchange-traded fund is expected to come on stream next week, the deputy head of Securities and Exchange Organization, Ali Saeedi, has announced.

News ID: ۷۷۹۸۳۷

23 October 2017

“One no longer needs to enter the physical forex market to invest in currencies. All that has to be done is buying shares in a foreign currency ETF, which will track currency fluctuations and provide investors with returns on investments,” Saeedi was quoted as saying by ILNA.

One aim of setting up currency ETFs, among others, may be to prevent shockwaves in the forex market during a supply deficit. That can be done by expanding their portfolio beyond only purchasing currencies by investing in export commodities and export-oriented firms that benefit from forex fluctuations.

“We’ve had many meetings this week and agreements are being made between the Central Bank of Iran and SEO. Regulatory concerns will be addressed by the end of the week and we expect to have the official go-ahead for setting up the ETF,” Financial Tribune quoted him as saying.

Currency ETFs invest in a single currency or a basket of currencies with the aim to replicate movements in currency in the foreign exchange market by holding currencies either directly or through currency-denominated short-term debt instruments.

Currency ETFs are widely used by investors who wish to gain exposure to the foreign exchange market and prefer not to enter the futures or forex market.

With the growing popularity of ETFs, investors have found it very easy and relatively inexpensive to trade currency ETFs to take advantage of fluctuations between currencies. Currency ETFs can be purchased to track most international currencies ,including the US and Canadian dollars, the euro, British pound and Japanese yen.

The two currencies dominating the Iranian forex market are the US dollar and euro. The former is the official currency used for Iranian transactions and the latter is the private sector’s currency of choice due to sanctions-related limitations on using the US currency.

Saeedi did not mention what currency or currencies the Iranian ETF will be denominated in.

The SEO seems to be aiming to attract investors away from the physical forex market, which is seeing a lot of activity these days due to rising political risks, to the capital market that is always in need of fresh supplies of liquidity.

This will relatively diminish forex trading risk and provide capital market investors with new options to put their money in.

The ETF is expected to fare well, considering the rising trajectory in many export-oriented stocks such as base metals on the back of growing commodity prices and a devaluing currency.

USD, Euro Zoom Past Rial

Euro has gained 16.68% against rial so far this fiscal year (started March 21) to reach 47,980 rials on Wednesday. The currency started soaring as of the end of the first quarter (June 21) and its path forward seems to be unobstructed for the time being.

The US dollar maintained a relatively balanced trend up until last month with slight upticks. However, the greenback started soaring against the rial on Sept. 23 to gain 3.82% and end at 40,410 rials on Oct. 10.

The spike was mostly due to market anxiety over US President Donald Trump’s threats to unravel the nuclear deal, which eventually cooled down and started dropping, as the October 15 deadline for US certification of Iran’s compliance with JCPOA drew closer and leaks showed the deal is here to stay, at least for now. The currency has resumed growth since Sunday.

Overall, the USD has gained a total of 7.2% against rial to reach 40,210 rials since March 21.

Base Metal Stocks Rising

Base metal stocks have been the hot new thing in Iran since early summer, as global prices showed signs of improvement due to China’s new environmental measures meant to crack down on pollutant industries.

The profit of producers, most of whom are exporters, exceeded forecasts with improving prices aligning with a weakening rial.

Now Tehran Stock Exchange’s Base Metals Index is close to crossing its all-time historic high of 46,975 reached on January 6, 2014. It has come a long way since its January 2016 all-time low of 19,439 by growing more than 138% up to now.

The index closed Wednesday trade at 46,417.40 to record a 0.64% daily growth.