Rouhani: Market Forces Should Determine Share Prices

EghtesadOnline: President Hassan Rouhani said on Sunday that a specific mechanism governs the stock market and underscored the critical need to avoid "unskilled intervention" in its operations.

News ID: ۷۸۵۷۶۱

11 January 2021

Addressing members of the government Economic Coordination Headquarters, Rouhani reiterated that the High Council of Securities and Exchange must be the one and only organization setting capital market policies.

"The bourse has a mandate to discover the real price of commodities. It is a basic policy of the government to support the pricing of goods based on supply and demand -- that is rules of a competitive market," he was quoted as saying by the government website dolat.ir.

The president described the stock exchange as a "major pillar in maintaining economic stability", saying that his government’s support for the share market is typically a function of playing by the rules.

Rouhani was apparently referring to a controversial decision last week by the Industries Ministry to set a price ceiling for steel products listed at the Iran Mercantile Exchange.

Industries Minister Alireza Razm-Hosseini last Tuesday announced a policy that calls for “steel products to be sold at the IME at prices equivalent to 70% in the Commonwealth of Independent States (CIS) markets.”

Concerns were also voiced by the First Vice President Es'haq Jahangiri who held an extraordinary meeting with economic and capital market officials as well as major shareholders of listed companies to discuss the critical situation of the stock market and finds ways out of the impasse.

Jahangiri said the government supports decisions made by bourse council, noting that "stock market rules must consider the interests of more than 40 million retail investors".

The plan to intervene in the market and control steel prices has become a topic of hot debate among government officials, steel manufacturers and capital market authorities.

Policy and decision makers argue that such measures would “reduce the final price of steel in the domestic market and support end consumers”. But there are valid concerns that such moves in essence have had the opposite effect and in the past filled the coffers of avaricious middlemen and given rise to rent-seeking.

Minister Defiant

While there is speculation in local media outlets that the contentious decision has been annulled by Jahangiri, there is no official confirmation to that effect. Razm-Hosseini has been defiant so far insisting that the new regulations must be upheld.

Steel producers also have taken issue with the minister’s position, saying that it will harm their earnings and is not in the interest of millions of shareholders of listed companies.

Regarding the new price mechanism that is far below  international prices, Kasra Ghafoori, the CEO of Khorasan Steel Complex Company, said "The price cap set by the ministry is even below the price of scrap steel in neighboring Turkey", boursenews.ir reported.

The unwanted pricing move has drawn unprecedented criticism from capital market officials due to its negative impact on equity prices. IME officials have said they refuse to adhere to the rules imposed by the Industries Ministry.

In the same vein, the managing director of the Securities and Exchange Organization, Hassan Ghalibaf-Asl, has urged the government to stop intervening in the pricing of goods produced by listed companies.

He said such rules are incompatible with competitiveness and market mechanisms where demand and supply determine prices.

Observers have said shareholders will be hurt the most by the decision because it will negatively impact the profit margins of listed companies. Share prices, especially of commodity companies, have nosedived in recent trading with stakeholders and retail investors counting the cost.