A burst of currency shocks led to a major change in the government's foreign currency policy, the United States pulled out of the nuclear deal after months of uncertainty and as a grand finale, an unexpected flood of money supply spawned a relentless stock market bull run leading equities to new heights.
In fact, unprecedented is the keyword to describe this quarter, as none of the previous years' quarters experienced such loads of political risks and financial turbulence, culminating in the revival of depressed stocks.
And the numbers speak for themselves. Tehran Stock Exchange's primary index TEDPIX gained 12,582.7 points or 13% in Q1 to set an all-time high record of 108,872.6. This growth is already more than half of what stocks gained during the previous fiscal year (March 2017-18), according to Financial Tribune.
The same holds for the smaller Iran Fara Bourse. Its all-share index, IFX, gathered 145 points or 13.22% to hit 1,241.61, the highest it has ever been.
Notably, all of the two exchanges' gains for the period came during the final days of the third month, Khordad (May 22-June 21). TEDPIX, for instance, would have ended Q1 0.4% lower if not for the rally that started on June 13.
> New Forex Regime
Coming out of a relatively prosperous year, Tehran stocks had a tumultuous month ridden with ambiguities during the first month of the year, Farvardin (March 21-April 20).
Equities kept a lethargic uptrend for the first two weeks, but things changed when the foreign exchange market started to heat up.
Having lost 30% of its value against the US dollar in the last fiscal year, the rial kept its losing trend until April 9, as it was unofficially being traded at 62,000 against the greenback. Stocks, especially export-oriented ones such as base metals, started to grow in line with the domestic currency devaluation.
But all this changed on April 10, as the government pinned USD exchange rate at 42,000 rials, abolishing all other unofficial rates. It delegated bureaux de changes' responsibilities to banks and discarded USD as its currency of choice for financial reporting.
Consequently, TEDPIX and IFX closed Farvardin 0.8% and 2.99% lower respectively.
> The Trump Effect
The following month, Ordibehesht (April 21-May 21), saw the Iranian economy's main political risk unfold.
US President Donald Trump announced on May 8 that he will not waive key economic sanctions on Iran as part of the 2015 nuclear deal, referring to the deal formally known as the Joint Comprehensive Plan of Action as "decaying and rotting", despite world leaders' months-long attempts to change his mind.
Despite the bad news, stocks did not have much of a reaction. TEDPIX edged up slightly actually, but IFX inched down.
Most analysts believed that the market did all the selloff it needed while speculating about the fate of JCPOA in the few months running up to the US pullback, with the new development clearing up the uncertainty for investors.
Now they could focus on market fundamentals without having to be distracted by the clouds of systemic risks.
> Side Effects to the Fore
The government was not backing down from its two-month old forex regime. USD was pinned and unflinching, and exporters were obligated to return their currency yields to the country, which effectively barred them from selling their hard currency at market rates.
However, despite the government's efforts, there was a black market out there with rates around 20,000 higher than the official rate. Many unfortunate applicants could not get their hands on 42,000-rial USD and were compelled to deal with higher forex rates.
Stocks were, meanwhile, devaluing with both exchanges' market caps shrinking in USD terms. Exporting firms such as metal producers and petrochemicals were especially irritated as access to cheaper greenback–the only legal type of forex available–still proved to be arduous. Consequently, not much happened during the market's first three weeks of the final month of the first quarter (May 22-June 21) as companies were still trying to make sense of things.
The status quo changed, as Trade Promotion Organization Chairman Mojtaba Khosrotaj hinted at the likely introduction of a secondary forex market. If established, this would enable exporters to sell their currency to importers at "agreed prices".
The news, alongside the saturation of alternative markets and injection of new money into stocks, rejuvenated equities and put them in the media spotlight, ensuring increased capital injection at least in the short run.
> Taming the Money Supply Monster
Another unexpected development in the third month (Khordad) was the unwavering chorus of government officials' support for the capital market.
"The government will support the capital market ... and will introduce no limitations to share trading," said First Vice President Es'haq Jahangiri in the meeting of the heads of three branches of power on Tuesday.
He emphasized that all governmental bodies with businesses are mandated to give up their shares on the capital market, with "Social Security Organization, banks' investment firms and military organizations" being at the forefront.
Similar remarks were echoed by the head of Plan and Budget Organization, the economy minister, the head of Securities and Exchange Organization and a number of parliamentarians last week.
Now, it might seem commonplace for officials regulating the economy to talk about stocks when they go up, but it is not the case in Iran.
Stocks news, especially their daily performance, was previously only relayed by SEO. The recent shift in tone and language, and whatever action that might entail, suggests that officials have realized stocks can take care of one of their biggest problems: ballooning money supply.
The current Iranian administration's crusade against inflation did work, as it shrank the growing monster to single digits. But the side-effect of this policy was that the banks' high deposit interest rates, meant to chain up cash in lenders' coffers, ended up nurturing a new monster.
Latest Central Bank of Iran statistics put money supply at 15.3 quadrillion rials ($364.2 billion) by the end of the last fiscal, having grown 22.1% year-on-year.
This wandering money supply has wreaked havoc in many markets, namely forex, gold and real estate, mostly since the maximum interest rate was cut down to 15% from 20% in the middle of last year.
Thus, the money avalanche entering stocks in the recent rally is a boon to regulators. Unlike forex and gold, investing in equities will not spur inflation, and what's more, it can actually stimulate the cash-strapped manufacturing sector.
"The government is trying to tame the money supply growth by channeling it toward productive sectors, the capital market's growths of late being an example," wrote Economy Minister Masoud Karbsian in an Instagram post.