Tehran Stocks: Back With a Bang and Favoring Small-Caps

EghtesadOnline: "Good riddance!" must have been how Tehran equity market traders reacted when the United States pulled out of the 2015 Iran nuclear deal.

News ID: ۷۸۲۶۱۷

19 May 2018

Seven trading days have passed since US President Donald Trump's announcement to reintroduce sanctions on Iran and Tehran stocks have only piled gains ever since.

TEDPIX gained 1,249 points or 1.3% during the week that ended on March 16 to close at 94,940.2. And Iran Fara Bourse’s benchmark index, IFX, gained 27.9 points or 2.6% to stand at 1,097.8.

It's partly understandable, considering that Trump's decision put an end to anticipation and what-ifs that plagued stocks for months, although the return of sanctions will certainly be a negative development for the Iranian economy down the road, according to Financial Tribune.

The renewed interest in stocks has also caused TSE's equal-weight index to outperform TEDPIX in weekly growth, as it jumped 3.8% or 629 points to 17,126.4.

Equal weight is a type of weighting that gives the same weight, or importance, to each stock in a portfolio or index fund, and the smallest companies are given equal weight to the largest companies in an equal-weight index fund or portfolio.

This is while small-cap stocks are generally considered to be of higher risk and higher potential return on investment compared to large-caps. The equal-weight index's rise can, therefore, be a sign of investors' confidence in positive market performance in smaller shares, at least in the short run.

It must be noted that large-cap shares such as petrochemicals and base metal producers are potentially the first in line for weathering the adverse effect of sanctions, and subsequently the road ahead is clouded by uncertainty. Moving to smaller-cap shares can also be a form of risk mitigation.

The US pullout from the nuclear deal, officially known as the Joint Comprehensive Plan of Action, is set to bring back sanctions on key parts of Iranian economy first on August 6 and then November 4.

Foreign businesses in Iran are obviously wary, to say the least. Most are not accepting any new orders and are already planning their exit.

That will take a while, but it seems inevitable, especially since European businesses in Iran await the results of the European Union's attempts for blocking US sanctions.

> Top Industries

At TSE, coal stocks had the highest growth among all industries for the week, as the industry-tracking index, with only Negin Tabas Coal Company listed in it, jumped 11.52% to 1,467.8.

The next unlikely winner was the "other mines" index that tracks Silica Sand MFG. Company's performance. It grew 11.3% during the week to 12,403.97

"Mass house building," "tiles and ceramic" and "sugar industry" came next with 8.92%, 8.53% and 8.44% growth rates respectively.

Wood products had the worst performance with a 3.36% drop, followed by "publication and printing" with a 1.79% downturn, "electrical devices" with a 0.97% drop and banking with a 0.27% retreat.

> Foreign Currencies, Gold Coin Drop

Major currencies and gold coin all dropped against rial this week, as the threat of systematic political risks seems to have subsided for now.

The US dollar is officially pinned by the government at 42,000 to the rial as of early April.

But there's also a black market, in which rates fluctuate. Unofficial reports put the black market USD/IRR rate at 63,400 rials on Thursday's close, a significant drop from the week before last's 66,000.

As for the benchmark Bahar Azadi gold coin, the week's trend was mostly downhill, save for a slight uptick on the first day. Overall, it dropped 4.49% to 18.71 million rials by the end of the week, nearly wiping all its gains in the week before last.

Euro, too, followed nearly the same pattern with a more significant downturn. Rial gained 6.55% during the week to euro to 74,100, according to data by Tehran Gold and Jewelry Union.

> Weekly Trade in Detail

Over 7.54 billion shares valued at $428.8 million were traded on TSE last week. The number of traded shares and trade value grew by 34% and 22.7% respectively compared to the previous week.

TSE’s First Market Index gained 917 points or 1.37% to end at 67,614.5. The Second Market Index dropped by 2,501 points or 1.19% to close at 212,832.8.

And at IFB, over 2.51 billion securities valued at $224 million were traded, with the number of traded shares and trade value growing by 67% and 1.5% respectively compared to the previous week.

IFB’s market cap gained $503.1 million or 1.4% to reach $36.8 billion.

Its First Market witnessed the trading of 116 million securities valued at $4.16 million, indicating a 39% and 18% uptick in the number of traded securities and trade value respectively.

About 663 million securities valued at $31.8 million were traded in the Second Market, with the number of traded securities and trade value rising by 32% and 8% respectively week-on-week.

Over 7 million debt securities valued at $153.9 million were also traded at IFB, dropping 1% in the number of bonds traded and rising 1% in their value respectively.

Exchange-traded funds were down 5% in trade number and 0.2% in value to reach 23 million worth $8.52 million.

Housing mortgage rights’ trade reached 40,000 securities worth $7.04 million, marking a 3% drop on both counts respectively.