Concern Over Supply Side in Stock Market

EghtesadOnline: Investors making the rounds in the Tehran stock market can run the risk of supply crunch in the absence of efforts to list more companies, head of Securities and Exchange Brokers Association said.

News ID: ۷۸۵۴۱۲

19 February 2020

Rouholla Mirsane'i underscored the need to boost the supply side in the stock market, warning that an imbalanced supply and demand condition can and will lead to unwarranted increase in share prices, ISNA reported.

More than 496,000 trading codes have been issued to novice investors since the beginning of current fiscal year up until Dec. 21, Financial Tribune reported.

This puts the total number of trading codes issued by capital market authorities at 11.33 million. The figure is besides the  2.5 million plus people who have put their money in investment funds.

Inflow of new liquidity has led to an unusual rise in the prices of a large number of small shares, giving rise to renewed concerns about price bubbles.

Observers point to a deep mismatch between the capacity of Iran’s stock market and the money flowing into it by an ever increasing number of investors.

“This number of investors is dangerous,” said Mirsane'i, adding “Under such conditions when demand rises to this extent and a huge amounts are injected into stocks, those in charge should boost the supply side.”

Boosting supply side means that more companies should be encouraged to list with the stock market, he said, urging capital market officials to reduce the bloated bureaucracy and ease cumbersome rules that govern listing of companies.

Rise in the number of trading codes indicates increasing attraction of the capital market, especially in light of the lackluster performance of parallel markets.

Disappointed by poor returns on gold, foreign currency, auto and house markets (in the recent past), investors with little or no financial literacy turned to the bourse in droves over the past few months as a safe haven to protect their assets.

The stock market has seen a dramatic surge thanks to the fresh liquidity. The main gauge of Tehran Stock Exchange has grown more than 160% since the beginning of the current fiscal year that ends in March.

Almost 1,290 trillion rials ($9.2 billion) has been injected into Iran’s stock market in the past three fiscal quarters to  December 21, according to Mohsen Khodabakhsh, an official with the Securities and Exchange Organization.

Saeed Eslami, head of the Iranian Institutional Investors Association, said earlier 15 trillion rials ($107 million) in fresh liquidity is pumped into shares and stocks every day.

Commenting on the issue, Amir Hamouni, CEO of junior stock market Iran Fara Bourse said “This can be both a threat and an opportunity for the capital market,” highlighting the fact that many investors lack the “financial depth” to operate professionally in the market.