Iran Weekly Market Report - September 19, 2016

Minor daily changes on the Tehran Stock Exchange kept the TSE All-Share Index steady, closing at 76,455, a 0.4% weekly drop. Over the last three weeks, the TSE’s main bench­mark has been fluctuating in negative territory, losing 2% in total. This week, the top per­forming major sectors were Sugar (+10.7%) and Construction (+5.1%). Metallic Products (-6.3%) was the weakest sector although it was the top gainer of the previous week. The Sugar sector, as the market’s favoured alternative investment, saw broad growth in the share prices of its listed companies. The Construction sector saw its index finally move upwards due to optimism in the housing market on the back of a 30% annual improvement in the latest homes sales figures in Tehran. Moreover, there is speculation about new pro­jects planned by companies in this sector. The initial moves into the sector were made by Housing Investment Co. (MSKN +2.76%) and Shomalshargh Investment Co. (PMSZ +5.29%), Iran Construction Investment Co. (SAKH +7.18%) and Tehran Construction & Renovation Co. (NSTH +6.27%). The Metallic Products sector was mainly affected by Ma­chine Sazi Arak Co. (MARK -7.71%), which lost the gains it had made a week earlier.

Reviewing the market from a technical perspective, the TSE All-Share Index continued dropping faster than its 50 day EMA, with the difference reaching -0.77%. The TSE’s main index has already slipped below the market support at 76,500. The next market support is 74,000 but the current support is not vanished yet. At the moment, the other Technical Analysis Indicators are showing possible further decline of the index.

The top 30 stocks of the Tehran Stock Exchange experienced a greater decline than the rest of the market. The TSE30 index, the index of the thirty largest companies by market capitalization, slipped by 0.6% to close at 3,110. Omid Investment Management Corp. (OIMC +2.45%) rose the most, while the majority of the top 30s recorded slightly negative weekly returns. The steepest drop was seen by Bandar Abbas Oil Refining Co. (PNBA -4.2%).

In contrast with the previous week, the Average Daily Trade Volume (ADTV) of the TSE slumped by 43% to USD 30 million. The shares with the highest weekly traded value were Iran Argham Co. (IAGM +12.16%), SAIPA Group (SIPA +0.53%) and Iran Khodro (IKCO -1.01%) which recorded USD 5, USD 4.2 and USD 4.1 million worth of trades. Market ru­mours pushed up the share prices of Iran Argham and some other IT companies. These companies may well participate in a government plan to improve traceable sales mecha­nisms, although nothing has been formally announced. The Iranian government is going to mandate shops and retail businesses to use smart retail Point Of Sales (POS).

The Iran Fara Bourse (IFB) market, saw its overall index close at 799, 2.6% lower than the previous week. This week the ADTV on the IFB went up by 42% to USD 32 million due to larger trade volumes in debt securities. The total volume of trade in debt securities surged by 80% to USD 63 million, making it the most popular instrument on the IFB.

In the FX Market, the Central Bank of Iran increased the US Dollar official rate by 0.2% to IRR 31,347. Similarly, the free market rate of the USDIRR rose by 0.2% to stand at 35,586. The Euro’s official rate experienced lower growth, as the CBI quoted it at IRR 35,247, a 0.1% weekly increase. EURIRR’s free market rate remained unchanged at 39,959.  The CBI reduced British Pound Sterling’s official rate by 0.6% to 41,550, while GBP’s free market rate was stable at 47,500.

Following rumours about an increase in interest rates in the interbank market, the Central Bank of Iran (CBI) released a report covering rates and volumes. According to the CBI, during the first five months of the current Iranian Calendar Year, ended August 21, the interbank rate fluctuated between 17% and 22%, while the weighted average rate was 18.2%. One year earlier, in the same period, the maximum and minimum rates were 30% and 24% respectively. The weighted average rate stood at 27.1%. The CBI report shows the interbank rate has dropped further than the country’s interest rate, which has been reduced by 7% to 15%.  However, the size of the interbank market has got bigger as the number of the loans, and loan size, has increased. In the five months to August 21, the average value of daily borrowing was almost USD 3.5 billion, a 79% increase on last year.
Loan volume has risen by 35%, reaching an average number of 100 loans per day. The banks participate in the interbank market in response to a need for liquidity in the banking network. There are unofficial reports about distress in some banks, as clients withdraw savings and deposits in the aftermath of the interest rate cuts over the past year. Mehr News Agency has reported that one private bank lost almost USD 2 billion of its deposits because of the interest rate reduction, although the name of the bank has not been dis­closed. Despite the concerns of banks, the CBI’s governor, Valiollah Seif, and other offi­cials, have hinted at the possibility of another interest rate cut. Last week, the media re­ported that the head of the Economic Commission of the Iranian parliament, Arsalan Fathipour, defended a 3% reduction in interest rates to 12%.  There is plenty of specula­tion about further rate cuts, however, the Money & Credit Council (MCC), as the decision maker, has not made any recent statements. Recent increases in the CPI index have put the monthly inflation rate above the MCC’s 1% target. Iran’s YoY inflation rate had been dropping constantly until June 2016, reaching 6.8%. However, since July the inflation trend has reversed, following two months of increases, and stood at 9.4% in August. Some experts believe that the MCC may be reluctant to change the interest rate in the short term and also before achieving inflation rate stability.

Written by Ali Karbalaee and Radman Rabii