What causes the downward slide in Iran’s stock market?
By Dalga Khatinoglu
Continuance of declining indexes on the Tehran Stock Exchange caused protests by shareholders on Jan.21.
Tehran Stock Exchange main index (TEPIX) dropped 535 points, or 0.8 percent on Jan. 21 day-to-day and stood at 65,028 points.
The fall of Tehran's main index started in early 2014 and has dropped 22 percent so far.
Over the past seven days, the decline accelerated, which has created alarm among shareholders.
But, why is Iran's stock market collapsing, while the official economic statistics indicate 4 percent GDP growth versus about 8.7 percent contraction during last two consecutive fiscal years?
Iran's fiscal year started on March 21.
The CEO of Tehran Stock Exchange, Hassan Ghalibaf Asl said Jan.21 that the plunge in oil price and parliament's disagreement on the budget bill proposed by government has pushed TEPIX down.
However, regarding the Tehran Stock Exchange's official statistics, TEPIX has been in decline since early 2014, several months after President Hassan Rouhani took office.
Bijan Bidabad, the former senior consultant to the Central Bank of Iran, told Trend Jan.22 that continuance of a decline indicates the worsening of political, financial or economic spheres.
"Regarding the Tehran Stock Exchange, delays on achieving comprehensive nuclear deal, losing the oil revenues and delaying improvement of budget bill by parliament likely have the most affect on TEPIX," he said.
Review of TSE during past five years
There doesn't seem -at first glance- any logical reasoning behind Tehran Stock Exchange's performance during last five years.
Below is a chart of TEPIX's performance over last five years, based on Tehran Stock Exchange's statistics.
The most growth in TEPIX happened in 2012 and 2013 after the US and EU imposed tight sanctions on Iran, leading to a 8.7 percent contraction of Iran's GDP. However, the country's currency, IRR, has dropped in value 3.5 fold since 2011.
Each USD was sold at 10,000 IRR in early 2011, while this figure reached 35,500 rials in mid 2013. IRR became stronger against USD during a period from 2H13 to 1H14, but plunged again to mid-2013 level.
For instance, rapid devaluation in 2H12, pushed Iranian share prices up 40 percent in four months.
On the other hand, semi-state companies had a great share in TEPIX and it has been said the government's support of these companies forced their share prices higher creating a rapid rise in TEPIX that was only a bubble.
The Iranian government submitted new fiscal year's budget bill to parliament in December 2014, but it hasn't been approved yet due to disputes over several points including oil price.
Iran's current government budget depends up to 40 percent on oil revenues, while the oil price has plunged from $107 in mid-2014 to around $45 currently.
Petrochemical plants have a big share in TEPIX, while the global petrochemical products price plunged by 18 percent in December 2014 month-to-month and the decrease continues but at a slower pace.
Petrochemical products export with worth $12 billion shares about 30 percent of Iran's total non-oil exports (including gas condensate, LPG, etc.).
Another factor impacting TEPIX is that while Iran and P5+1 have extended interim nuclear deal obtained in November 2013 two times by June 30, 2015, there is not any sign of agreement between sides yet.
Edited by CN
Dalga Khatinoglu is an expert on Iran's energy sector, head of Trend Agency's Iran news service
Follow him on @dalgakhatinoglu