Iran Weekly Market Report - 10/09/2015

The Tehran Stock Exchange performed negatively once again on a weekly basis as the TSE All-Share Index slipped 0.18%, marking the fifth consecutive week of declines. The main index of the TSE closed at 61,389 on Wednesday after having recovered from a low of 61,163 earlier in the week. By looking at the negative trend of the TSE over previous weeks, the recent pace of the All-Share Index’s fall has been reduced, and the TSE’s main benchmark has experienced narrow fluctuations at current levels. An increase in OPEC’s oil basket price by 10% (USD 48.24/bbl. stated for Wednesday) over the past week has caused some analysts to have an optimistic view towards its implications for the Tehran Stock Exchange and hence reducing the rate of decline by the All-Share In­dex.

By Technical Analysis perspective, the TSE All-Share index continued its sideways trend by experiencing low volatility, moving around the 61,500 support level. The index’s nega­tive gap from its 50 Day EMA has reached 2% coming down from 3% in the previous week. Nevertheless, there are still no significant signals that would indicate the index’s upward move toward the 65,000 resistant level. At the moment, the market’s support around the 61,500 level has blocked further declines of the index, but the risk still re­mains.

Also, the index of thirty largest listed companies by market capitalization, the TSE30 in­dex continued its declining trend by losing 0.19% of its value to close at 2,622. It has been 12 weeks since the TSE30 index has recorded any gains. The optimistic indications toward the future price of oil caused shares in the oil refinery and petrochemical sectors to perform better than other listed shares covered by the TSE30 index on Wednesday’s trading session.

Moreover, the Average Daily Trade Volume (ADTV) of the market had a slight decline, reaching USD 19.5 million, which is the lowest measure since the beginning of the Irani­an Calendar Year on March 21, 2015. Chadormalu, Bandar Abbas Oil Refinery and Iran Khodro were the top traded stocks of the week by having USD 5.3 million, USD 4.5 mil­lion and USD 3.6 million worth of transactions respectively. The iron ore producing com­pany, Chadormalu, slipped by 0.7% this week to close at IRR 2,545 (approx. USD 7.3 cents), while Bandar Abbas Refinery’s share price closed at IRR 3,748 (approx. USD 10.7 cents) to record a 1.9% increase after experiencing several weeks of weak performances. Also, the value of Iran Khodro’s shares plunged by 12.6% as it closed at IRR 1,780 (approx. USD 5.1 cents).

On the other hand, the FX market witnessed further depreciation of the Iranian Rial. The US Dollar rate in the free market rose 1%, reaching IRR 34,787 while the Central Bank of Iran announced the official USD rate at IRR 29,957 without any significant change com­pared to the previous week. Similarly the official rate of the EURIRR rose 1%, quoted at IRR 33,720. The free market rate of Euro also increased by 1.3%, reaching IRR 39,278. The CBI also raised the value of the British Pound by 1%, announcing it at IRR 45,487, while its free market rate also grew by 2.1% and was exchanged at IRR 53,600.

Furthermore, the International Monetary Fund released an End-of-Mission press release based on a recent trip by its staff to Iran in September 2015. The IMF statement demon­strates the country’s current economic status and its future prospects. According to the press release the country’s present economic status has been adversely affected by the lower prices of crude oil resulting in slower economic activities. The IMF has pointed out that the Iranian corporate sector is struggling with weak demand, large inventories and low capacity utilization rates. The IMF staff expects Iran’s economic growth to stand at 0.5% to -0.5% and for the inflation rate to slip to 14% in 2015/2016. However the expectations are positive for the Iranian year 1395 (2016/2017). Lower costs of trade, financial transactions and restored access to foreign assets in addition to higher volume of oil sales, as a result of the removal of sanctions, are the main factors behind this positive view. The IMF predicts Iran’s GDP growth to surge to 4% - 5.5% mostly because of an expected increase in crude oil sales by 600,000 to 1 million barrels a day. The contribution of other factors to this growth, excluding the oil sector, is expected to be around 0.75% - 1%.

The IMF’s reports also points out to the banking system due to the sector’s high non-performing assets and recognizing it as one of the reasons behind Iran’s current economic stagnation. However the ongoing reform plans in the banking sector are appreciated and advised to be followed. The report reads “The authorities have taken important steps over the past year, completing an initial financial health check of the banking system, and by preparing drafts to reform banking and central bank laws to strengthen the frameworks for prudential supervision and monetary policy. They have also started to work on measures to address the linkages between government arrears to suppliers, non-performing loans, and public debt to banks”.