The primary political risk faced by stocks in recent years is arguably the fate of Iran's nuclear deal reached in July 2015, formally known as the Joint Comprehensive Plan of Action, ranging from the ups and downs of negotiations, the signing and lifting of sanctions that promised a new era, and now the prospect of it being scrapped.
Tehran Stock Exchange's TEDPIX has acted as the economy's barometer throughout the period, as investors contemplated Iran's future, and relative to the index, different industries posted varying returns.
Each economic indicator's performance can be gauged by referring to its respective index, but making sense of an abstract concept like risk is slightly more complicated, according to Financial Tribune.
One of the most popular indicators of risk in technical analysis is a statistical measure called beta.
Beta is a measure of a stock's volatility in relation to the market. By definition, the market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market.
A stock that swings more than the market over time has a beta of over 1.0. If a stock moves less than the market, the stock's beta is less than 1.0. High-beta stocks are supposed to be riskier but provide a potential for higher returns; low-beta stocks pose less risk but also lower returns.
Beta is calculated using regression analysis. Beta represents the tendency of a security's returns to respond to swings in the market.
The formula for calculating beta is the covariance of the return of an asset with the return of the benchmark divided by the variance of the return of the benchmark over a certain period.
Now, each listed industry's reaction to JCPOA-related developments can be gauged by calculating their beta coefficient.
An analysis by the Persian publication Donya-e-Eqtesad shows that market leaders such as refineries, automakers and metal producers have had predominantly high risk and high reward during the deal's lifetime.
> Nuclear Negotiations
Negotiations with six world powers, namely France, the United Kingdom, Russia, China, the United States and Germany, starting from March 2014 up to July 2015 had Iran's markets up and moving after a period of lethargy.
The stock market had pronounced reactions to developments in negotiations and was at the same time being watched by the world as the barometer of the economy.
Industries' systematic risks shifted accordingly. Data show that slightly more than one-third of listed industries grew in risk. Banking and auto manufacturing were the prime industries that grew under the prevailing risk.
> Post-JCPOA
The Joint Comprehensive Plan of Action was officially signed by P5+1 and Iran on July 14, 2015. The country was rejoicing as this meant the lifting of crippling economic sanctions, but the markets and especially equities needed a few months to react to the good news.
In Q4 of fiscal 2015-16, TEDPIX started a rally and most key industries' risks were dwindling, as the deal was implemented and sanctions were officially lifted.
Financial transactions became less costly and traders simply had less of a burden on them, which was especially beneficial to automakers vying for bringing foreign names into Iran.
Iran Khodro and SAIPA were expected to have lower operational costs and better quality, and auto part importers were set to have an easier time.
With the removal of sanctions on the Central Bank of Iran and its reconnection to SWIFT, banks' shares became more favorable, even though their bad financial conditions kept them from being in the spotlight.
During this period, the beta coefficient for 16 industries stood higher than 1. At 1.9, automakers garnered the highest among all industries. And with more risk came the prospect of more gain; TSE's auto industry index had one of its biggest rallies lasting for a few months, which only died down when investors started doubting deals with foreign carmakers.
Banks, too, had their beta from JCPOA negotiations period drop from 1.19 to 1.14, meaning that they still fluctuated more than the index.
Sugar, leather products, textile, woodworking and pharmaceutical industries had the lowest beta for this period.
> Deal Uncertainties, Commodities and Forex Rally
Tehran stocks had a good run during the last fiscal year (ended March 20, 2018) mostly on the back of positive market fundamentals.
Growing global commodity prices coincided with a devaluing national currency trend and boosted the market, more than half of which is made up of export-oriented firms.
The rial lost 30.7% and 41.92% of its value against the US dollar and euro to reach 48,990 and 58,360 respectively by mid-March.
But what put the brakes on TEDPIX's various rallies during the year was the ever-lingering shadow of the nuclear deal going down, with US President Donald Trump repeatedly threatening to pull out of the multilateral accord.
Accordingly, ferrous ore producers occupied the top spot for the period with a beta of 2.22, followed by refineries with 2.05, coal producers with 1.75, base metals with 1.72 and oil and gas extraction with 1.67.
The five industries with the lowest beta were "other mines" with -0.04, telecom with 0.02, textile with 0.04, pharmaceuticals with 0.11 and "electric machinery manufacture" with 0.11.
