Tehran stocks end week flat as traders await forex stability

Financial Tribune- Tehran stocks spent last week in limbo, as traders seemed paralyzed with eyes fixed on the foreign exchange market for a sign of stability, which remains elusive.

Tehran Stock Exchange’s main index TEDPIX gained 48 points or less than 0.1% during the week that ended at 98,347.9 on Feb. 14.

The smaller over-the-exchange market Iran Fara Bourse’s IFX added 4 points or 0.4% during the week to reach 1,107.8.

What has kept stock investors on hold is the erratic devaluation of rial against the US dollar coupled with the increasing yield on Islamic Treasury Bill’s and the yearend’s traditional push for selling by institutional investors.

Still, historical data show that stocks will eventually throw away caution and pick up on the back of a weaker currency, although with a certain amount of lag.

Ill Omens on the Horizon

The biggest sign that scales have shifted in the foreign exchange market is the growing gap between the official and market exchange rates.

In official rates announced on Thursday by the Central Bank of Iran, rial was quoted at 37,091 against the US dollar. The market rate, however, stood at 47,380 at the week’s close. This is one of the highest disparities between the two in the past five years.

Authorities’ remarks, interviews and even direct interventions in the market failed to reverse rial’s downward spiral with USD/IRR market rates jumping past 49,000 during the week. They only stopped growing after security forces stormed trade hotspots in downtown Tehran, arresting tens of street currency dealers and freezing accounts of major currency traders totaling 200 trillion rials ($4.1 billion).

There are other ill omens looming for stocks, too. The debt market recently witnessed growth in bonds yields reaching up to 17.5%, while average yield to maturity stayed below 15% before February.

Considering the historical trend in Iran’s money and debt markets, the two are bound to follow each other in developments related to risk-free investment options. Consequently, analysts expect bank deposit rates to rebound in the near future, according to Financial Tribune’s sister publication Donya-e-Eqtesad.

Cash-strapped banks would welcome the rise in interest rates, as they were cut down to 15% and 10% on one-year and short-term deposits respectively in September by CBI. It will be to the CBI’s benefit, too, as higher rates can overshadow forex’s attraction and stabilize the market.

What it would mean for stocks, however, is stealing equities’ thunder following a recent bull run as risk-free, high-return investment options will make a return.

Weekly Trade in Detail

Over 3.31 billion shares valued at $183.5 million were traded on TSE during last week. The number of traded shares and trade value both plunged by 40% compared to the previous week.

Trading at Iran’s stock markets starts on Saturday and ends on Wednesday. Markets were closed on Sunday due to holidays.

TSE’s First Market Index gained 86 points or 0.1% to end at 69,855.6. The Second Market Index dropped by 167 points or less than 0.1% to close at 209,451.9.

And at IFB, over 1.31 billion securities valued at $138.23 million were traded, with the number of traded shares and trade value dropping by 21% and 37% compared to the previous week.

IFB’s market cap also lost $111.2 million or 0.4% to reach $28.56 billion.

Its First Market witnessed the trading of 248 million securities valued at $10.5 million, indicating a 30% and 28% drop in the number of traded shares and trade value respectively.

About 355 million securities valued at $26.7 million were traded in the Second Market, with the number of traded securities growing by 36% while trade value dropped 28% week-on-week.

Over 4 million debt securities valued at $66.6 million were also traded at IFB, dropping 47% in both number of bonds traded and their value.

Exchange-traded funds also dropped 4% in trade number and 19% in value to reach 51 million worth $12.7 million.

Housing mortgage rights’ trade was down too, as it reached 34,000 securities worth $5.23 million, down 7% for both.

Forex, Gold Zoom Past Stocks in Weekly Gains

The foreign exchange market was in the spotlight last week with equities driven to the sidelines. The US dollar, euro and gold all recorded significant growth for most of the week before being dampened by market regulators’ intervention.

Bahar Azadi gold coin overtook euro in terms of weekly returns to take first place. It was followed by euro, USD, IFB and TSE.

Euro has come on top so far this fiscal year (March 2017-18), followed by gold, TSE, IFB and USD.

TSE posted a 27% gain so far this year, while the figure stood at 26.5% for IFB.

The rial was quoted at 60,970 against euro by the trading week’s close, marking a 1.54% growth for the currency.

Euro’s gain so far this year reached 48.27%, having started the year at 41,120.

The US dollar, on the other hand, gained 1.13% against the rial this week to 47,380. Its gain so far this year reached 26.41%, having started the year at 37,480.

As for gold, Bahar Azadi gold coin grew 2.08% last week to 15.21 million rials. Its total gain so far this year stood at 29.88%.