Iran Weekly Market Report

The Tehran Stock Exchange witnessed positive performances in its shares in the last week of the Iranian Calendar Year, 1394. The TSE All-Share Index rose by 2.4%, closing at 80,219. The index had gone up to 80,236 on Monday but then slipped down from the highest point of the year on Tuesday. The All-Share Index experienced a minor recovery on Wednesday to close at 80,219. The All-Share Index or TEDPIX started the year at 62,531 and recorded a 28.2% yearly growth, closing at 80,219. However, the index had even fallen to 61,163 during the year, recording only a 2.2% draw down. The current Ira­nian Calendar Year ends on Saturday, March 19th 2016. During the year, the average daily return of the index has been 0.11%, while the highest daily gain has been +3.59% and the greatest drop has been -1.8%. The daily changes in the TSE’s benchmark, All-Share Index, puts its risk to reward ratio at 7:1 in the year 1394 (2015/16).

This week the Automotive (+24.8%), Metallic Ore (+11.3%) and Machinery & Electric Equipment (+9.6%) sectors recorded the highest gains among the major sectors. Metallic Products (-3.5%), Sugar (-3.7%) and IT (-3.2%) were the weakest sectors. On a yearly basis, the Automotive, IT and Transportation & Logistics sectors have experienced the highest growth of the major sectors. They have gained 115%, 83% and 72% respectively. The weakest annual performances were recorded by the Rubber & Plastics, Ceramic & Tiles and Cement sectors which dropped by 22%, 4.1% and 3.8% respectively.

From a technical analysis perspective, the All-Share Index has a smooth outlook going forward, having surpassed the 80,000 level. The pace of growth increased slightly during the last week of the year, after a month of slight changes up and down. TEDPIX’s mis­sion for the new year will be reaching the next resistance at 89,500. At the moment, some indicators are showing the index’s potential to start a new round of growth, includ­ing in the Money Flow index, MACD and also Bollinger Bands.

The index of the thirty largest companies by market capitalization, the TSE30 index, rose by 1.4%, closing at 3,380. The index had gone up to 3,438 during the week but declines on Tuesday and Wednesday pulled the index below the 3,400 mark. This week, Iran Khodro (IKCO +12.15%), Chadormalu Mining & Industrial Co. (CHML +8.03%) and Gha­dir Investment Co. (GDIR +5.66%) were the top performers among top 30s. The weakest performers were Parsian Bank (BPAR -8.59%), Persian Gulf Petrochemical Industries Co. (PKLJ -5.11%) and Esfahan Oil Refining Co. (PNES -5.06%). In total, the TSE30 in­dex has had higher volatility than the All-Share Index in the current year. The TSE30 in­dex started the year at 2,877 and witnessed 17.5% annual growth. However the index had even dropped by 10.8% during the year, as the maximum draw down in 1394 (2015/16). The highest daily gain of the top 30s over the year has been 3.7% while the deepest daily drop has been -3.4%. On average, the daily gain of the TSE30 index has been 0.1%. In general, the 30 largest companies on the Tehran Stock Exchange had low­er gains and higher risk compared to the market as a whole. The risk to reward ratio of the TSE30 index has been 13:1 this year.

The Average Daily Trade Volume (ADTV) of the market reached USD 557 million this week, 279% higher than the previous week. This week, National Iranian Oil Co.’s partici­pation bonds, worth more than USD 1.4 billion, were sold on the TSE, which pushed up the trade volume considerably. Deducting the NIOC’s bond value, the ADTV would be USD 203 million, still 34% higher than the week before. In total, during the year, 244 bil­lion shares were exchanged on the TSE for USD 16 billion. The ADTV over the whole year stands at USD 66 million.

This week, the shares with the highest traded value were Iran Khodro, SAIPA Group (SIPA +60.29%) and Rena Investment (RENA +9.18%). They recorded USD 67, USD 29 and USD 28 million worth of trades respectively.

Moreover, the Iranian Rial declined in the FX market during the last week of the Iranian Calendar Year. The Central Bank of Iran set the official USDIRR rate at IRR 30,240, re­cording a 0.1% increase from the previous week. The free market rate saw a similar movement, reaching 34,306. The CBI also increased EURIRR by 2.3% to 33,935; the corresponding market rate moved slightly less, increasing 1.4% to 38,224. GBP saw the official GBPIRR rate increase by 0.4% to 43,089, while the free market exchange rate slipped by 0.2% to 49,100. The Iranian Rial’s annual performance shows a drop of over 2% versus the free market rate of US Dollar. The official rate of USDIRR have in­creased by 8%, over the year. Official EURIRR has increased by 12.5% on the year, the free market rate, less, at 5%. .

The Rial’s prospects are closely linked to consequences of the removal of sanctions and the country’s access to hard currency, including Iran’s frozen funds abroad. Although, different opinions exist on exactly what these effects will be. Some economists believe that the removal of sanctions will strengthen the Rial. According to this group, access to the country’s resources in foreign banks will increase foreign currency supply, while in­creased oil production and exports will improve the government’s hard currency income. This camp forecasts the free market rate of the USDIRR dropping to 25,000. However, there is an opposing point of view that believes the historical devaluation of the Iranian Rial will continue. Analysts in this camp are considering the impact of weak global oil pric­es and the government’s ability to manage expenditure in line with next year’s budget. They are forecasting an increase in the USDIRR free market rate up to 40,000. In any case, government and central bank officials have stated one of their priorities next year is to unify the free market and official exchange rates. According to official statements, the unification of the exchange rates is expected to be implemented within the first 6 months of sanctions removal. Many Iranian banks have now been reconnected to the SWIFT net­work and are now working on re-establishing their correspondent relationships with their international counterparts. Once those relationships are set up and money transfers through banking channels become available, one of the most significant obstacles to­wards normalization of the foreign exchange market will be removed.