The Dwindling Tehran Stock Market

Iranian blogger, Aras Hassan-Nia, Roozonline:

Trading in Tehran's Stock Market took a deep dive last week and has sent economist and business watchers worried. The market has been on decline, but very gradually, since about eight months ago, while observers had predicted that presidential elections would bring back more buyers and traders. The reverse has taken place and business analysts expect more black days ahead as more share holders come to the Tehran Stock Exchange (TSE) to sell rather than trade their stocks. READ MORE

TSE is a revised and reactivated industry in Iran, after many years of closure. It was revamped when the state decided to sell many of its business, which it had initially nationalized and expropriated soon after the collapse of the monarchy in the early 1980s. For a while, the market boomed with new players who made fantastic profits in the trade. But those days are long gone.

Just a cursory look at the books of the authorized traders at TSE shows the long list of sellers. Brokers have been trying to rebuild confidence in the market by promoting stocks, educating the public, and downplaying the insecurities, but even the public that had been confident and interested in investing their cash, continues to prefer to keep their money close by, rather than part with it. The slowest sector belongs to the small stock owners who seem to have been shocked by the recent presidential elections and the comments that have become more regular since then. Business analysts say trader insecurity and wait-and-see attitude before the elections was understandable, but the end of the elections has not brought about the expected upswing in trading and purchases, and in fact has resulted in more sales of stocks rather the purchase of additional ones. The drop in the value of these shares has created a spiral effect, where stock holders do not wish to see the value of their assets fall even further.

Analysts notice that the money that was traditionally played with at the stocks, is now diverted to the foreign exchange and gold coin markets, which bring in better returns and fluctuate less. The trading index shows a 10.3 percent drop in trade between last Monday and the same period last year.

In discussing the causes for this decline in trading, most observers agree that the election of a hardline president who wants to reverse many political and economic trends and policies in the country is prime culprit. Even though the president-elect has refuted allegations that he views stock trading as un Islamic, the public is not convinced primarily because president elect Ahmadinejad has made more references to forced economic redistribution and structural changes, than refutations regarding stock trading. He has openly shown his dislike for almost any kind of business laissez-faire activity. His direct criticism of private banks, which are relatively new in the Islamic Republic after the government take overs in the 80s, leave no doubt in the minds of listeners and businessmen the direction that he favors in economic activities. Mohammad Khoshchehreh who has been tipped as Ahmadinejad's possible Minister of Economy, recently injected sufficient concern into the market by stating that the drop in stock trading is a "plot" and those responsible must be investigated by the security agencies, and punished! Such state and police intervention in a purely business activity that is sensitive to government policies, certainly only inflames existing concerns.

In addition to the political waves that influence the stock market, the Secretary General of TSE who is its CEO is also blamed for public's vanishing confidence in the market. During the campaigning period, Abdoh Tabrizi had openly supported ayatollah Rafsanjani for President and had even promised "stocks for everybody" on his victory. As things turned out differently, no one knows how to deal with a situation where all the eggs were put in just one basket. Investment companies that normally purchase and trade large volumes of stocks too seem to be more focusing on the political issues and have set their eyes on the next CEO and winning favors with him, rather than on market confidence building.

Iran's stalled talks with the Europeans on the nuclear issue too have added another uncertain dimension to the market. The elections have in fact made the situation even more uncertain as Iran's new negotiations strategy and goals seem to be changing and taking more of a confrontational rather than resolution approach.

Tabrizi is scheduled to make a public announcement about his plans for the next two months, but his record does not convey a very confidential message. He has failed to deliver his targets in selling government stocks to the public in the past, and so stands on shaky grounds. He had at one time promised to sell some 140 billion Toman of stocks to about 14 million families in Iran, but is still far short of anything near it.

The Bonds Market too is trying to revive its activities and on Monday announced an 8 point plan that essentially involves some restructuring of the capital market in Iran. His plan now sits at Ahmadinejad's desk to be reviewed. The outcome, will not be overlooked by the traders, although its impact can have more negative than positive effects. TSE's Tabrizi may reveal that plan as well today in his press conference, in an effort to halt the dwindling trade.

While some have called for Tabrizi's resignation from the TSE due to a drop in his confidence since the loss of his presidential candidate, others have argued that he has been a positive force on the job. Perhaps more importantly is the observation that in recent days, a number of Ahmadinejad's former colleagues have been getting high level posts at the TSE which Tabrizi, with his known intelligence, may find convenient to work with in bringing back some of the lost confidence. But field analysts do not put much hope even in such machinations for a market that has some serious imbalances and contradictions.

Tehran's Stock Exchange is housed in a modern glass window, designed to convey openness and transparency. But now a thin fog is settling on the window panes. Small traders who follow political trends as carefully as they do the value of their stocks, are astute enough to notice that while the windows of the president's windows are not as clear, behind them chat players who have a record of negativism towards the open market.

Of all the uncertainties of the market, one thing is clear: the value of public shares is falling.