Iran Weekly Market Report - 22/10/2015

The Tehran Stock Exchange closed on a positive note for the second week in a row. The main index of the TSE, gained 1.9% compared to the previous week to close at 63,175. During the last two weeks, the All-Share Index has started rising from its two year low mark of 61,209, experienced on October 6, 2015. The Automotive, Banks and Other Financials sectors were the major movers as their indices gained 11.7%, 6.6% and 6.5% by the middle of the week. However, their performances turned negative during the week’s last trading sessions. As a result, the TSE All Share Index had minor gains since October 19, 2015, rising on a smaller scale compared to the beginning of the week.

In other developments, some listed banks released their 6-month financial reports. Ac-cording to the banks’ disclosures, these entities have underperformed in comparison to their projections which they had published earlier. Investors have yet to react to this event as the publications were made available after trading hours on Wednesday evening. The market will also remain closed on Saturday due to a public holiday. Nevertheless, as the banking sector makes up a large portion of the total market capitalization, the negative results can have an adverse effect on the market’s overall performance on Sunday.

By Technical Analysis perspective, the All-Share Index is showing the positive signals we have been waiting for in the past several weeks. The TSE’ main index has positively crossed its 50 Day EMA on Saturday this week and it is already above its 50 Day EMA by 1.3%. However, the index’s fragile positive momentum is a risk factor for the continuation of the recent gains. The next resistance level stands at 65,000 which should be broken to label the current moves as an uptrend. Nevertheless, the current cycle still faces the risk of having the index fall back to 61,209 points.

Also, the index of thirty largest companies by market capitalization, the TSE30 Index, out¬performed the All-Share Index, rising by 2.8% to close at 2,729. The index has gained 4% since the last two weeks, due to positive performances of Parsian Oil & Gas Develop¬ment (16%), Iran Khodro (+11.5%), Karafarin Bank (+7%) and Khouzestan Steel (+11.6%).

Moreover, the Average Daily Trade Volume (ADTV) rose by 41% this week, reaching USD 35 million. The shares with the highest traded values were Saderat Bank, Mellat Bank and Iran Khodro which had USD 7.5, USD 7.4 and USD 5.4 million worth of trades respectively. Saderat Bank ended the week at IRR 917 (approx. USD 2.6 cents) by re-cording a gain of 2.6% on a weekly basis. Mellat Bank’s share price declined by 1.9% to close at IRR 1,992 (approx. USD 5.7 cents). Iran Khodro also closed at IRR 1,929 (approx. USD 5.6 cents), 1.9% higher than the previous week.

Meanwhile, the FX market witnessed the appreciation of the Iranian Rial against major currencies. The official rate of the U.S. dollar was set at IRR 29,953 by the Central Bank of Iran, almost 0.01% higher than the previous week. This is while the free market USDIRR rate dropped by 0.5% reaching IRR 34,460. Similarly, the free market price of the Euro stood at IRR 39,408, 1% lower compared to the previous week. CBI also announced the official EURIRR rate at 33,979 showing a 1.2% slip on a weekly basis. The British pound also decreased in value against the Iranian Rial as the free market rate was reported at IRR 53,254 (-0.6%) and the official rate has been announced as IRR 46,223 (-0.2%).

The Money & Credit Council of Iran held its highly anticipated meeting on Tuesday, how¬ever, it did not announce a reduction in banking deposit interest rates as was expected by analysts. The committee released a statement in which three different fields were targeted in order to stimulate the Iranian economy. These points included the rates and liquidity of the interbank market, real estate and also policies towards stimulating consumer demand. According to the council, the Central Bank supervises the interbank market and is also required to provide liquidity for the banks, as a last resort. The statement did not include a reduction in banking interest rates as expected. However, it mentioned that the Central Bank of Iran should explore the potential of lowering rates. The latest inflation figures published by the CBI suggest a YOY inflation rate of 11.7%. This is while bank interest rates on annual deposits stand at 20%. At the same time, the interbank rate is reported to stand at 26%-29%. Some experts believe the Money & Credit Council is making steps towards lowering interbank rates before it decides on reducing deposit interest rates. Furthermore, the Required Reserve Ratio (RRR) has been changed from 13% to a range between 10%-13% depending on the bank’s policies. According to the council, the highly disciplined banks will enjoy having an RRR level of 10% which increases their available liquidity. Meanwhile, the statement has allowed banks to offer mortgages up to IRR 600 million (approx. USD 17,000) in Tehran and IRR 500 million (approx. USD 14,000) in the other major cities. There is also a support plan for the auto producers to be able to sell their products on credit. This plan will allow consumers to receive loans up to 80% of the value of domestically produced vehicles, capped at IRR 250 million (approx. USD 7,100). The payback period is structured to be 7 years with 16% interest. The plan also covers agricultural machineries such as tractors and combines. Moreover, banks are also allowed to issue credit cards up to a limit of IRR 100 million (approx. USD 2,850) for consumers in order to stimulate consumption.