When President Hassan Rouhani took office in August 2013, his economic team was geared to manage the rising liquidity issue in a bid to tame stubborn inflation. Hence, interest rates for bank deposits went up to swallow the liquidity. Money flocked to the banks as a safe haven for investments, with up to 25% in annual interest. This policy has been successful in terms of subduing inflation. However, it has been accompanied by a persistent liquidity drain in the equity market.
The credit crunch has ultimately curbed investors’ enthusiasm about shoring up their portfolios and triggered sell-offs in the stock market, Mehdi Naji, a senior market analyst at Hafez brokerage, told Al-Monitor.
“The money market is offering a risk-free investment with 25% yield annually, though the equity market’s yield since the beginning of the current Iranian year has been even below zero with an average P/E ratio at almost five.”
The TSE, which has a market capitalization of close to $91 billion, has also seen its daily trade volume take a hit from the recent commodities glut. Daily trade volume used to be almost $90 million; however, the cloud of pessimism drove daily trade volume down to $20 million in the last week of September.
Yet, despite the dark clouds, the Iranian economy is expected to experience a positive momentum by early 2016, when major Western sanctions are to be removed. Fresh stimulus, including foreign direct investment and repatriation of frozen assets abroad, are seen as likely to trigger a persistent upward trend at the stock market. However, until then, uncertainty appears set to continue at the Tehran Stock Exchange.
(Picture: Tehran Stock Exchange)