Tehran Stock Market to Benefit From Rising Dollar

EghtesadOnline: The US dollar is notching new highs against the rial in Tehran’s foreign exchange market these days, while the stock market remains relatively dormant.

News ID: ۷۸۱۷۶۴

15 February 2018

This is while equities, especially commodity-based ones, are poised to be the main winners of USD’s recent bull run, as exporters make up over 50% of Tehran Stock Exchange-listed companies.

When a country’s currency weakens, its imports go up in price but exports gain in competitiveness. Yet, as exports rise, the currency regains value and stocks gain in the midst of this cycle.

It appears that stock traders are not quite convinced about the longevity of USD’s rise against rial, considering the Iranian government’s traditional sensitivity to national currency fluctuations, Financial Tribune reported.

Stocks and currency movements in Iran have always had a close yet paradoxical relationship. When systematic risks grow, investors seek safe havens such as currencies that sap stocks’ growth. But pouring money into forex market eventually revitalizes equities–although with a certain lag–as a large portion of the economy is export-based.

Consequently, petrochemical, mineral and metal shares, as well as investment firms and holdings invested in them are expected to rise further in the coming weeks driven by both a cheaper rial and rising global commodity prices.

Rial’s depreciation against the greenback started to gain steam since early October over US President Donald Trump’s deadline for certifying the 2015 Iran nuclear deal. USD jumped past the psychological level of 40,000 rials back then and its growth was eventually dampened by government intervention.

The foreign exchange market heated up again in late December and in the following two months, the greenback witnessed quotes of up to 49,120.

The currency shock came despite repeated assurances by officials, including President Hassan Rouhani and Governor of Central Bank of Iran Valiollah Seif, that the fluctuations were temporary and triggered by non-economic factors. CBI interventions, however, proved fruitless.

New tensions surfaced on Wednesday, as the parliament in its open session slammed the government over rial’s ongoing devaluation and called on CBI to balance the market.

Later in the day, sources close to the government told Fars News Agency that 775 bank accounts, allegedly belonging to unauthorized forex dealers with a combined turnover of about 200 trillion rials ($4.25 billion) were blocked to rein in market fluctuations.

Police forces stormed Tehran’s Ferdowsi Street and Sabze Meydan (the capital’s two forex trade hotspots) on the same day and arrested tens of street currency dealers, ILNA reported.

Consequently, rial rose by about 580 against the greenback in midday trading to reach 48,170, up from the day’s open of 48,750, according to Tehran Gold and Jewelry Traders' Union.

At about 15:30 p.m., however, the currency had another retreat against USD to drop 180 rials to 48,350.

Whether the new interventions can finally contain the growth in currency exchange market remains to be seen.