Gov’t Says Mobilizing Efforts to Support the Struggling Bourse

EghtesadOnline: The economy minister said the relevant administrative bodies have agreed to do all that is needed to support the struggling stock market.

News ID: ۷۸۷۲۴۴

02 November 2021

The ministries of industry and oil along with the Central Bank of Iran have pledged to build closer collaboration “to restore trust” of stock market investors, IRNA quoted Ehsan Khandouzi as saying.

With share prices declining rap and the anxiety of retail investors at all-time high, Khandouzi met stock market officials, managers of investment banks and CEOs of the top 30 listed companies to find ways out of the worsening crisis.

After the meeting he said participants emphasized “the need for paving the way to improve transparency in the stock market”.

“Improving the degree of economic predictability and eliminating the harmful policy of imposed prices” by the government are of paramount importance.

Investors, for example, have often complained about the obscure way the government supplies feedstock to the refinery and petrochemical companies, which by extension undermine the share prices of such companies.

Likewise, mandatory pricing by the Industry Ministry has hurt the profit margins of many listed companies, including mineral, steel, food, tier manufacturers.

Moreover, parity forex rates the CBI sets for listed banks is often lower than rates in the market. Thus, requiring lenders to prepare their financial statements based on arbitrary rates normally impacts their performance in the bourse.

For example, the CBI has said that one euro must be calculated at 129,000 rials and the dollar at 110,000 rials (or equivalent in other currencies). This official rate is the benchmark for banks when converting forex debt and assets into rials.

The de facto devaluation of foreign currency continues despite the fact that forex rates are way higher in the open market.

The official rates are often less than half the market and for years has been opposed by academia, prominent economic experts and free market advocates. The greenback is worth about 275,000 rials in unofficial market.

Strong Will to Change Course

These are patterns that undeniably show the extent to which the government intervenes and impacts the share market. The minister said now there is an understanding and strong will to minimize the unwanted and unhelpful interference.

“Big mistakes have been made regarding changes in feedstock prices and forex rates,” Khandouzi concurred, stressing that the relevant bodies have agreed to create the conditions to minimize uncertainty and stability.

He said the pricing mechanism in the auto industry has changed and will soon be announced by the Industries Ministry.

The share market has been grappling with bearish trends that began after the bubble burst in the summer of 2020 and non-stop selloff swept through most share categories.

Ever since the government has been trying to revive the trust of millions of retail investors and the ordinary people who were encouraged by the highest state authorities to put their savings in the share market.

In what was seen as a serious government effort to bolster the bourse, the government of former president Hassan Rouhani in May announced that it would enforce ten support measures to lift the market.

Among other things, the measures include borrowing from the National Development Fund of Iran (sovereign wealth fund), lift bans on banks and brokerages to invest in the share market and encourage foreign investment.