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Why TSE Failed to Respond to Expectations?

30/08/2015 | 14:29 code : 7472 Daily News
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After the presidential election in June 2013, almost every investor in Tehran Stock Exchange was waiting for Iran and P5+1 to reach an agreement, which would have consequently led to the lifting of sanctions on Iran.
Why TSE Failed to Respond to Expectations?

After the presidential election in June 2013, almost every investor in Tehran Stock Exchange was waiting for Iran and P5+1 to reach an agreement, which would have consequently led to the lifting of sanctions on Iran. A little over two years after the election, Iran and P5+1 signed a comprehensive agreement on 14 July, 2015, but stocks have been going down ever since.
Accordingly, Iranian Privatization Organization (IPO) reports quoting from Financial Tribune, 22 August, 2015, Section Business & Markets, P. 7:
TEDPIX, TSE’s all-share price index, went down almost 10 percent since the historic nuclear agreement. In justifying the recent movement of the market, we should consider three major points.
First, almost 60 percent of TSE’s market cap belong to companies whose businesses are largely dependent on the price of commodities, which have been globally in a downturn for quite some time for a variety of reasons that are independent of the lifting of sanctions on Iran. While the commodity markets do not paint a promising outlook for most companies listed in TSE, other listed companies, with a promising outlook, are being dragged down due to how the price moves are regulated in TSE.
Second, although the political risk of sanctions, which has been weighing on the market for the past several years, has ended, the sanctions themselves are still present. There are still some legal and technical requirements in the way of the lifting of sanctions. Of course the stock market should be a leading indicator of Iran’s economy, which now has a very brighter outlook, but currently the economy is still in a very hard recession, which means investors have very limited cash to invest in the market. Hence, as long as investable cash present in the market is shrinking day by day and there is no new cash, such as foreign investment flowing into the market, the prices may further deviate from their intrinsic value.
Third, the Central Bank of Iran is trying hard to reduce inflation and stabilize it in the one digit territory. So, the CBI is strictly holding onto its monetary policy with very high interest rates.
Under the current economic atmosphere, some banks are offering deposits with such high interest rates, which will yield risk-free real rates up to 7 percent for their investors. This monetary policy has dried up cash from all economic sectors and investors are particularly reluctant to buy risky assets such as stocks under the current circumstances.
Although the long-term outlook for the market is very promising considering the current state of affairs, in the short and medium term it is a question of “how” and “when”. Iran’s economy has been disconnected from the regional and global economies for quite some time now.

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