In Iran, Stocks Are a Haven As Economy Hits the Skids
Amid an economy in turmoil, the Tehran Stock Exchange index has provided Iranians with a rare dose of relief.
On Saturday, the stock market's All-Share-Price Index, or TEPIX, surpassed the 31,000-point threshold for the first time in its 45-year history. It continued rising on Tuesday, closing up 0.4% to 31,331.6 points.
Conventional wisdom would assume that a country's stock market mirrors broader macroeconomic sentimenteven when magnified by speculation. Not in Iran, where the more the economy worsens, the more the stock market improves.
The mood could hardly be gloomier outside the Iranian bourse. International Sanctions against Iran's contested nuclear program, which it says is peaceful, have more than halved oil exports, its largest source of revenue.
With foreign earnings growing scarcer, the local currency, the rial, has been fast declining against the dollar. It fell by 25% in seven days in September before partly recovering after the government forced companies to go through an official currency exchange.
Meanwhile, the main index in the Tehran Stock Exchange, one of the largest and most diversified in the Middle East, has been oblivious to the turmoil. It gained almost 28% in the past three months.
And that isn't because of an inflow of foreign capital.
The Tehran bourse did loosen investment rules for foreigners, allowing them more flexibility to buy or sell shares, two years ago. But most Iranian banks are now under U.S. and European Union sanctions and international banking transactions are heavily scrutinized, making it difficult for non-Iranians to take positions on the market.
As a result, all brokers listed on the TSE's website are Iranian-owned, generally units of local banks or charitable religious foundations.
In fact, the bourse's boom appears to be the upshot of Iran's economic challengesmounting economic isolation and inflation. Investors are fleeing other trades, such as real estate, gold or currency speculation.
"Foreign exchange is expensive, more restricted and even riskier with the existence of counterfeits," says Hossein Ebneyousef, president of independent consulting firm International Petroleum Enterprises in McLean, Virginia.
Unofficial currency traders, in particular, have been targeted by a n intense crackdown following the rial's drop.
"There are not many alternative investment outlets given the sanctions on the country," says Paul Sullivan, a professor of economics at the National Defense University in Washington D.C.
Indeed, Tehran's bourse is a rare haven in Iran. It gives investors an opportunity to buy into companies that have benefitted from sanctions. These are state-owned industrial companies that rely on a mostly domestic supply chain, turning locally-produced raw materials into products targeting Iranian consumers.
According to Iran's ministry of finance, Saturday's TEPIX record was driven by trades in companies like Mobarakeh Steel Co., which produces steel from iron ore mined in central Iran, and Bandar Abbas Oil Refining Co., which transforms Iranian crude into gasoline for Tehran's motorists.
Bandar Abbas's refinery, one of the largest in the country, has been booming since sanctions against sales of oil products to Iran forced the country to become largely self-reliant. Since the company went public in June, the stock has nearly tripled in value. On Tuesday, it closed up 89 rials, or 3% at 3025 rials.
Mobarakeh Steel, up 23% in the past nine months, is getting a similar boost from international pressure on Iran. Its products are gaining market share as importers of manufactured metal products such as pipes go out of business because of the drop in the local currency and difficulties paying suppliers. Scrutiny of international financial transactions adds to their challenges.
On Tuesday, Mobarakeh Steel closed down 9 rials, or 0.2%, at 3698 rials.
"Sanctions limiting export of the goods and services to Iran create more growth opportunity for the firms," says Mr Ebneyousef. In addition, "a weaker rial makes imports more unaffordable, creating more demand for domestic goods and services."
The trend looks likely to continue. Iranian authorities said over the weekend that they would seek to cut imports of nonessential goods, such as phones and cars, by requiring traders bringing them into the country to buy foreign exchange at an unfavorable rate.
Other experts say the level of Tehran's bourse index doesn't reflect its real value. "The fall of the rial leads to inflation which leads into the nominal increase in the TSE," NDU's Mr Sullivan says.
In Iran, Stocks Are a Haven - WSJ.com
Amid an economy in turmoil, the Tehran Stock Exchange index has provided Iranians with a rare dose of relief.
On Saturday, the stock market's All-Share-Price Index, or TEPIX, surpassed the 31,000-point threshold for the first time in its 45-year history. It continued rising on Tuesday, closing up 0.4% to 31,331.6 points.
Conventional wisdom would assume that a country's stock market mirrors broader macroeconomic sentimenteven when magnified by speculation. Not in Iran, where the more the economy worsens, the more the stock market improves.
The mood could hardly be gloomier outside the Iranian bourse. International Sanctions against Iran's contested nuclear program, which it says is peaceful, have more than halved oil exports, its largest source of revenue.
With foreign earnings growing scarcer, the local currency, the rial, has been fast declining against the dollar. It fell by 25% in seven days in September before partly recovering after the government forced companies to go through an official currency exchange.
Meanwhile, the main index in the Tehran Stock Exchange, one of the largest and most diversified in the Middle East, has been oblivious to the turmoil. It gained almost 28% in the past three months.
And that isn't because of an inflow of foreign capital.
The Tehran bourse did loosen investment rules for foreigners, allowing them more flexibility to buy or sell shares, two years ago. But most Iranian banks are now under U.S. and European Union sanctions and international banking transactions are heavily scrutinized, making it difficult for non-Iranians to take positions on the market.
As a result, all brokers listed on the TSE's website are Iranian-owned, generally units of local banks or charitable religious foundations.
In fact, the bourse's boom appears to be the upshot of Iran's economic challengesmounting economic isolation and inflation. Investors are fleeing other trades, such as real estate, gold or currency speculation.
"Foreign exchange is expensive, more restricted and even riskier with the existence of counterfeits," says Hossein Ebneyousef, president of independent consulting firm International Petroleum Enterprises in McLean, Virginia.
Unofficial currency traders, in particular, have been targeted by a n intense crackdown following the rial's drop.
"There are not many alternative investment outlets given the sanctions on the country," says Paul Sullivan, a professor of economics at the National Defense University in Washington D.C.
Indeed, Tehran's bourse is a rare haven in Iran. It gives investors an opportunity to buy into companies that have benefitted from sanctions. These are state-owned industrial companies that rely on a mostly domestic supply chain, turning locally-produced raw materials into products targeting Iranian consumers.
According to Iran's ministry of finance, Saturday's TEPIX record was driven by trades in companies like Mobarakeh Steel Co., which produces steel from iron ore mined in central Iran, and Bandar Abbas Oil Refining Co., which transforms Iranian crude into gasoline for Tehran's motorists.
Bandar Abbas's refinery, one of the largest in the country, has been booming since sanctions against sales of oil products to Iran forced the country to become largely self-reliant. Since the company went public in June, the stock has nearly tripled in value. On Tuesday, it closed up 89 rials, or 3% at 3025 rials.
Mobarakeh Steel, up 23% in the past nine months, is getting a similar boost from international pressure on Iran. Its products are gaining market share as importers of manufactured metal products such as pipes go out of business because of the drop in the local currency and difficulties paying suppliers. Scrutiny of international financial transactions adds to their challenges.
On Tuesday, Mobarakeh Steel closed down 9 rials, or 0.2%, at 3698 rials.
"Sanctions limiting export of the goods and services to Iran create more growth opportunity for the firms," says Mr Ebneyousef. In addition, "a weaker rial makes imports more unaffordable, creating more demand for domestic goods and services."
The trend looks likely to continue. Iranian authorities said over the weekend that they would seek to cut imports of nonessential goods, such as phones and cars, by requiring traders bringing them into the country to buy foreign exchange at an unfavorable rate.
Other experts say the level of Tehran's bourse index doesn't reflect its real value. "The fall of the rial leads to inflation which leads into the nominal increase in the TSE," NDU's Mr Sullivan says.
In Iran, Stocks Are a Haven - WSJ.com
