The English-language paper Iran Daily in an opinion piece by Hamid Mir-Moeini looks into Iran's capital market and the fall in the bourse index, offering strategies to restore prosperity to the bourse.
Below you can find the full text:
A study of Irans capital market shows that four main reasons have greatly contributed to a fall in the bourse index in the past few months [before and after the July-14 nuclear deal], reducing the value of stockholders shares.
The causes are: 1. Changes in global prices, 2. Flawed economic policies, 3. Passivity of the stock exchange in controlling the changes in its index and 4. Critical condition in regional states.
If any of the abovementioned circumstances had improved, the market would have reacted more positively.
As for the situation of the global stock exchange, hope of a significant reform is quite slim. In addition, continuation of the downward trend in the economic growth of industrial countries, even that of China, has caused the bourse index of other states to drop. Currently, the prospect of a substantial growth in terms of the capital market index is poor.
Due to its numerous economic problems in the past two years, the government failed to shore up the stock exchange market by injecting extra liquidity and adopting specific policies. Since taking office in 2013, the main priorities of the Rouhani administration have been to end the recession and curb inflation. These two economic drawbacks have had negative impacts on domestic capital market.
At present, the government can support the bourse by enacting effective financial and monetary policies as well as employing economic driving forces. The Securities and Exchange Organization can also play a pivotal role in this respect by assuming the role of an intermediary between capital market activists and state policymakers, in addition to fulfilling its supervisory role. This way the SEO will be able to inform the state officials of the latest developments in the market.
Regional tensions have heightened concerns about the security of the bourse thus lowering the index. Latest problems in Saudi Arabia and Mina stampede further exacerbated the condition of the capital market.
The government is required not to overlook the importance of the market. All countries experience the same unfavorable situation. Moreover, this is not the first time Iran is witnessing the same decline in bourse index. The difference, however, lies in the attitudes adopted by different Iranian governments in tackling such problems. State packages and supports are required to shun considerable damages to the capital market and revive it.
Four strategies can guarantee or, at least, accelerate the prosperity of the domestic stock exchange.
The government is required to change peoples attitude towards the bourse. Prior to the initiation of the downwards trend, the market delivered an average annual profit of up to 33 percent; whereas, currently, the figure maximally reaches 10 percent. The people should bid farewell to those days when the market yielded considerable profit.
No other countrys bourse produces such hefty profits. The profit return in Japan, for instance, stands at 0.5 percent. They take into account the countrys inflation rate and banking systems interest rates in running the stock exchange.
The government owns up to 70 percent of the stocks of companies listed in the bourse. Therefore, by funneling more monetary reserves into its funds, it can greatly reduce the fluctuations and maintain a stable growth rate. This will prevent from any sudden increase or decrease in the value of the stocks.
There must be a collective will among domestic funds and companies to stop offering shares and only make purchases. One of the reasons for the markets present unfavorable condition was the excessive distribution of shares by different sectors which resulted in the saturation of the market.
Changing domestic banks interest rates will also fail to instantly have positive impacts on this market in the short run. In case the government intends to achieve positive outcomes through this, it will first have to create prosperity in the market. Nobody is keen on investing in a low-interest sector.
By IRNA
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