DUBAI: Iranian share prices have rallied 40 percent in the past four months, at odds with the country’s deteriorating economic fundamentals under the weight of sanctions and raising the risk of a stock market bubble, analysts say.
While a weak currency, high unemployment and double-digit inflation are contributing to a contraction in the Iranian economy as Western sanctions crimp the country’s energy and banking sectors, some listed companies are benefiting as a sharp currency devaluation has made them much more competitive.
That is boosting the share prices of companies like Sina Chemical Industries, up 145 percent since October, and Abadan Petrochemical Co, up 18 percent in that time.
Surging demand for shares, however, also reflects high inflation, a devalued currency and a lack of alternatives for local investors to park their cash, making the stock market overvalued and vulnerable to a sharp fall, analysts say.
Sanctions imposed by Western countries that have cut much of Iran’s access to the global financial system have made it difficult for wealthy Iranians to send their money overseas, said an economist in Tehran, who did not wish to be identified.
“There are some people who got extremely rich in the past few months, again because of the devaluation of the unofficial rate of the rial,” he said. “They don’t really have the option of sending their money to banks abroad or investing in other countries, so they invest in the Tehran Stock Exchange.”
The Tehran Stock Exchange’s (TSE) main index, TEPIX, closed at a record high of 33,889.4 points on December 11, and is up from around 24,000 in August with daily turnover averaging $67.1m this year.
The heady gains have led exchange officials to warn investors not to get carried away by the recent rally.
“Experience tells us that buys must be made on the basis of analysis and a long-term view,” said Mahmoud Reza Khajeh-Nasiri, a senior exchange official, according to the Iranian Students’ News Agency in October. “Investors ... should not be caught up in the excitement.”
With 300 or so listed companies, the bourse has a market capitalisation of $120bn, at the government’s exchange rate for the rial currency.
The rial has lost more than half its value in Iran’s open market in the last year as sanctions have prompted Iranians to convert savings to hard currency on the view that reduced oil exports and foreign exchange earnings will limit the central bank’s ability to defend the rial.
It now sells for about 30,000 to the US dollar in the open market. The government maintains a much stronger “reference” rate for the rial of 12,260 to the dollar that is only available for the import of some basic goods.
Depreciation of the rial has made foreign imports more expensive and boosted demand for locally made goods as the Iranian government has also limited the imports of some items in a bid to preserve its foreign exchange reserves. That is supporting the rise in some local companies’ shares.
Reuters
