Iran’s Stock Market Overtakes Global Rivals After Investors Seek Refuge from Inflation
Thu, January 23, 2020

Iran’s Stock Market Overtakes Global Rivals After Investors Seek Refuge from Inflation

The Tehran Stock Exchange has overtaken its global rivals within the past 12 months / Photo by scyther5 via 123rf

 

The Tehran Stock Exchange, Iran’s largest market, has made a notable achievement this year as it has overtaken its global rivals within the past 12 months. The rise is not a result of the country’s economic boom but is due to the fact that domestic investors have sought refuge from the rampant inflation in the country.

 

What pushed the Iranians to put money into stocks

In a report published by the Financial Times, Iran’s official inflation rate reached 43 percent due to the collapse of the Iranian rial against the US dollar. Consequently, it triggered an increase in the prices of goods and services in the country. The interest rates of banks likewise could not keep up with inflation rate and analysts believe that the situation pushed the Iranians to put their money into the stock market to protect the value of their money or savings.

The inflation triggered the rapid sales in Tehran bourse as investors feared economic stagnation and military conflict. Now, the stock exchange is up 73 percent in terms of local currency for the past 12 months, overtaking the equity markets of other countries. A Tehran-based asset management firm’s manager, who requested anonymity, said that the stock exchange center showed that it can position itself against foreign currency risks and that it is an ideal market to guarantee that investors’ money will earn high dividends. 

 

Protection from economic stagnation

The daily continued that over 60 percent of the market capitalization of the stock exchange was attributed to the top 30 listed companies as well as the top exporters of copper, steel, and petrochemicals in Iran. These are the businesses that also earn foreign currency income so they remain protected from economic stagnation in the country. By economic stagnation, it means a prolonged period of slow economic growth and is measured traditionally through GDP growth and accompanied by the unemployment rate.

 

Iran’s official inflation rate reached 43 percent due to the collapse of the Iranian rial against the US dollar / Photo by whitelacephotography via 123rf

 

If the value of the Tehran Stock Exchange and Iran Fara Bourse in the past 12 months will be combined, its total is still somehow below its market in 2014 when it reached historic high. During that time, Iran agreed on a long-term deal on its nuclear program with other world powers and hoped for the lifting of oil and banking sanctions. Over the years, sanctions have taken a toll on Iran’s economy and its people. 

Just last month, Reuters reported that the United States has imposed another round of sanctions on Tehran, including the country’s central bank and development fund. This was after attacks on oil facilities in Saudi Arabia that the US and Riyadh officials blamed on Iran. The attack halved the oil output from Saudi Arabia, which is the largest petroleum exporter in the world. Iran, for its part, denied its involvement in the said attack but the Iran-aligned group Houthi movement fighting in Yemen’s civil war claimed responsibility for the attack. 

London-based market analyst Amir Paivar commented that the oil export proceeds of Iran are often deposited in the Central Bank accounts, which means that the bank has “central” significance.

A manager of an investment fund in Iran told the daily that since US President Donald Trump “swept into power,” there was almost no new foreign investment portfolio in the Tehran bourse. Furthermore, the capital market of Iran is meant not for investors, who want quick money but for those who have stamina.

Iran’s daily Tehran Times has likewise reported that the value of trades at Iran’s stock market has reached four quadrillion rials or about US$95.238 billion. The country’s over-the-counter exchange market managing director Amir Hamooni also said that the value of trades at Iran Energy Exchange (IRENEX) reached 150 trillion rials or US$3.571 billion since the start of 2019.

The two important purposes of the stock market are to provide capital to companies to expand and fund their businesses and to give investors the chance to share in the profits of the publicly traded firms. Most stocks are traded on exchanges and some are over the counter, where sellers and buyers trade through a market dealer. 

 

 

Stocks traded at current prices

As of 2018, America remained the top country by stocks traded in the world. By stocks traded, it means the total value of shares traded in a particular period. Iran was included among the best performing stock market. Its total stocks traded in 2018 were estimated at $26,215,069,785.7. Its stocks traded years prior are detailed below:

$11,741,666,197.1 (2017)

$18,689,210,535.1 (2016)

$8,444,810,000.0 (2015)

The top 5 countries based on the stocks traded last year were the United States, China, Japan, Korea, and Hong Kong.

The US’ stocks traded were estimated as follows:

$33,027,245,670,000 (2018)

$39,785,881,380,000 (2017)

$42,071,330,000,000 (2016)

$41,398,501,970,000 (2015) 

 

 

Meanwhile, China’s stocks traded values were estimated as thus:

$13,070,642,237,217 (2018)

$17,171,575,050,000 (2017)

$18,241,293,830,000 (2016)

$39,326,501,970,000 (2015)

Japan’s total stocks traded in 2018 was $6,304,085,320,533 while Korea reached $2,445,740,148,431.