The Tehran Stock Exchange continued with slight changes for the fourth consecutive week. The market witnessed positive returns this week. The TSE All-Share Index, after two weeks of minor negative returns, recorded a slight gain of 0.8%, closing at 78,312. It is the highest closing measure of the index in 2016 so far. The Automotive sector enhanced its position as the marker leader this week. The sector regained its momentum in the current week and recorded a weekly gain of 9.4%. The Oil Products sector was the second top performer of the week, increasing by 7.7%. Surprisingly, the Base Metal and Metallic Ore sectors were the next top performers of the week as they rose by 7.1% and 6.1% respectively.

The average weekly returns of the two sectors in 2016 were 1.8% and 1.5% till last week. Among the major sectors, the weakest performances were recorded by Sugar and Chemicals, which dropped by 5.1% and 4.1% respectively.
From a technical analysis perspective, the All-Share Index’s gap with its 50 day EMA declined to 4% (from 5% the week before). The market benchmark finally surpassed 78,200 with minor daily gains. The current prospect at the moment indicates higher pace of growth or at least continuing the current limited moves. There is currently no indication for a negative trend. The TSE’s main index has one week to break the resistance at 78,500 before the Iranian Calendar Year ends.

The index of the thirty largest companies by market capitalization, the TSE30 index, rose by 2.1% after three weeks of poor performances. The TSE30 index closed at 3,345, the highest measure in 2016 so far. Parsian Bank (BPAR +17.6%), Iran Khodro (IKCO +15.03%) and Bandar Abbas Oil Refining Co. (PNBA +13.13%) were the leaders of the top 30s. The weakest performances were recorded by petrochemicals. Kharg Petrochemical Co. (PKHA -5.32%), Persian Gulf Petrochemical Industries Co. (PKLJ -4.91%) and Jam Petrochemical Co. (PJMZ -4.30%) had the largest drops among the top 30s.

The Average Daily Trade Volume (ADTV) of the market rose by 21.6%, reaching USD 152 million. This week Automotive shares were the most popular. The shares with highest traded value were Iran Khodro, Iran Khodro Diesel (KAVR +23%) and Pars Khodro (PKOD +37%), recording USD 61, USD 47.5 and USD 37.6 million worth of trades respectively.

In the foreign exchange market, the Central Bank of Iran increased the official rates of major foreign currencies. The CBI added 0.1% to the official rate of the US Dollar to IRR 30,222. However, the free market rate of USDIRR slipped by 0.8% to 34,288. The official rate for the Euro was set at IRR 33,174 by the CBI, 1.1% higher than the previous week. In contrast, the free market rate of EURIRR dropped by 1.1% to 37,681. The CBI also raised the official rate of British Pound Sterling by 1%, to IRR 42,912. The free market rate of GBPIRR also experienced a 0.8% increase, reaching 49,200.

The Money & Credit Council of Iran (MCC) has increased the maximum amount of mortgages for the second time in less than a year. According to the MCC, the new plan will increase the LTV (Loan to Value ratio) to over 50%. The new plan is expected to provide IRR 1.6 billion from Maskan Bank (Housing Bank) to married couples who are first time home buyers in Tehran. The interest on these mortgages will be 13% and the payment duration is 12 years. The exact details of the plan have not yet been released. However, it has already been announced that the plan will be available for eligible applicants who deposit an amount, to be disclosed later, in non-interest accounts at Maskan Bank. It is worth mentioning in the previous plan, applicants had to deposit 50% of the total value of the loan for a year before their mortgage was approved.

Aside from the scheme of providing IRR 1.6 billion in mortgages, another plan has also been introduced with fewer limitations. According to this plan, applicants would be able to receive mortgages up to IRR 1 billion in Tehran by buying mortgage rights in the securities market. Mortgage rights are listed in the Iran Fara Bourse market where applicants can buy and hold till delivery for receiving mortgages. Nevertheless, the interest on these mortgages will be 17.5% and this plan is not limited to first time home buyers.

According to the two mortgage plans, households will have to pay IRR 19 million per month for 12 years to pay back an IRR 1.6 billion loan, while those who buy mortgage rights would have to pay IRR 14 million per month for an IRR 1 billion loan.

Experts are skeptical about the success of the new plans in stimulating the housing market. Over the last three years, Hassan Rouhani’s government has been considering plans to support the demand side in the housing market by increasing mortgage amounts. However, there has not been any indication that the depression in the sector has improved. The new plans have already faced criticism regarding the expensive monthly payments to pay back the mortgages. Some analysts believe the targeted population of households who can afford this plan doesn’t seem to be large enough to push the housing sector forward. In total, 65% of families in the cities have ownership of the properties they are living in. This is while 24% of families are living in rented properties. During the last ten years, the number of home owners has dropped by 6% but the number of tenants has increased by 16%. The average household income in the cities is stated at IRR 20 million per month. Over 50% of these families have only one person working. The total number of households in the cities is around 17.6 million and housing expenses constitute 33% of their costs. By reviewing the income decile groups in the cities we see only 1.7 million households can afford these plans in practice. It means the number of households who can afford this plan and at the same time need to buy a house should be less than 400,000 cases. To compare this figure with the scale of the housing market in Iran, we only have access to the Tehran’s home sales report. In the first 11th months of the current Iranian Calendar Year (ending at March 19, 2016), the total home sales figure in Tehran has been 141,542.

The Construction sector’s performance has not affected significantly as a result of the MCC’s recent announcement. The sector’s average weekly gain in 2016 was 3.3% till last week, while its growth has continued with a slower pace this week by gaining 2.6%. The three companies with the largest market capitalization in this sector are Housing Investment Co. (MSKN +4.8%), Shahed Investment Co. (SAHD +2.36%) and Iran Construction Investment Co. (SAKH +7.6%).

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