Iran Weekly Market Report - October 07, 2016

Investors witnessed a rally in automotive stocks on the Tehran Stock Exchange during the first few days of October. However, the market’s main benchmark, the TSE All-Share In­dex, recorded a negative return at the end of the week, closing at 77,183, recording a weekly drop of 0.2%. Following the signing of a joint venture deal between Renault and the Iranian Government, the Automotive sector’s (+8.4%) popularity rose and the sector’s index continued to hike at a strong pace. The upward trend was largely driven by Iran Khodro (IKCO +11.8%) and SAIPA Group (SIPA +14.92%). There is speculation that one of SAIPA Group’s subsidiary companies will be bought by the new joint venture company in order to have a manufacturing plant. There are also rumors about a possible improve­ment in SAIPA Group’s projected net income on the back of higher sales volume in the last six months. SAIPA’s projected net income for the financial year ending March 21, 2017 is IRR 4,005 billion (approx. USD 112 million). In addition, there is news that a seri­ous negotiation is ongoing between SAIPA Group and Citroen for another joint venture company to produce three makes of Citroen cars in Iran. Despite the incredible perfor­mance of the Automotive sector, the overall performance of the All-Share Index was nega­tive. This was mostly because of the weak performances of the Sugar (-8.0%), Construc­tion (-4.0%) and Metallic Products (-2.3%) sectors. The promising news from the auto in­dustry attracted speculators from other sectors to Automotives.

Reviewing the market from a technical perspective, the TSE All-Share Index was unable to break the resistance at 77,500 and again closed below it. Some Technical Analysis In­dicators are currently singling the chance of further hikes. Reviewing the index status with chart study factors, hints there is a possible upward move toward 78,500. In a negative scenario, we expect the market support to be at 76,500.

The pace of growth on the TSE30 index, the index of the thirty largest companies by mar­ket capitalization, slowed and the index closed at 3,131, 0.2% higher than last week. The top 30s’ top performing shares were SAIPA Group (SIPA +14.92%) and Iran Khodro (IKCO +11.8%), while the negative performance of various shares spoiled the positive effects of Automotive on the TSE30 index. Ansar Bank (BANS -6.35%) and Farj Petro­chemical Co. (BFJR -3.53%) saw the greatest declines.

This week the Average Daily Trade Volume (ADTV) of the TSE continued improving and reached USD 73 million, 24% higher than a week earlier. The constant growth of the ADTV comes on the back of higher trades in stocks. The market demand for equities pushed the daily traded value to above USD 100 million this week and for the first time since May. During the summer, debt securities and block trades were the main drivers of the market’s traded value. The shares with the highest daily traded value were SAIPA Group (SIPA +14.92%), Iran Khodro (IKCO +11.8%) and Zamyad Co. (ZMYD +10.69%) recording USD 47.2 million, USD 35.8 million and USD 19.1 million worth of trades re­spectively.

On the Iran Fara Bourse (IFB) market, the overall index ended up in negative territory, closing at 812, 0.6% lower than last week. The ADTV of the IFB continued to drop, reach­ing USD 31 million, an 8.8% decrease. Stocks were more popular than debt securities, ETFs and other products, recording USD 87 million in total traded value, representing no significant change to the previous week.

In the FX market, the US Dollar continued its slight increase versus the Iranian Rial, as the Central Bank of Iran set its official rate at IRR 31,545, a 0.3% appreciation. Its free market rate also went up by 0.2% to IRR 35,829. The CBI quoted the official rate of the Euro at IRR 35,327, 0.03% lower than last week. EURIRR’s free market rate rose by 1.4% to 40,130. The British Pound Sterling’s official rate reached IRR 40,122, as the CBI reduced it by 2.1%. The free market rate of GBPIRR stood at 46,200, a 1.5% decrease.

In other economic news, the International Monetary Fund (IMF) has described Iran’s econ­omy as having ‘substantially improved’. The latest IMF Iran statement was released on October 3rd, following its monitoring of the country’s economy after the removal of sanc­tions in January. According to the IMF, oil production and exports have rebounded to pre-sanctions levels and activity in agriculture, auto production, trade and transport services has increased. These developments have triggered a strong recovery in real GDP in the six months since the implementation of the JCPOA on January 16. According to IMF esti­mates, the projected real GDP grown for the fiscal year ending March 2017 will be at least 4.5%, with year-on-year inflation rate at 9.2%.

National Iranian Oil Company (NIOC) has issued a report on exports of crude oil and gas condensates in the 200 days ending on October 4th. An average of 2 million barrels of crude oil were exported every day at USD 38 a barrel. Total export value was USD 15.1 billion, almost 2% lower than the same period last year. The price of crude per barrel fell by 24 per cent, from USD 50, while the export volume increased by 28%. Gas condensate exports were at 0.5 million barrels per day with an average price of USD 40, bringing the total to USD 4 billion. Export volumes jumped by 40% while the price of gas condensate per barrel declined more than 20%.

At the end of September, Renault revealed it is entering into a joint venture with the Irani­an Government in order to establish a new car manufacturing plant in Iran. Iranian assem­bled Renault vehicles, “Symbol” and “Duster”, will become available on the Iranian market in 2018 and a capacity of 150,000 vehicles per year has been forecasted. According to the media, the memorandum of understanding between the two parties was signed when the Iranian delegation visited France. The delegation included the Minister of Industry & Busi­ness as well as the Deputy Minister of Economic Affairs & Finance.

This week, the German Economic Affairs minister, Mr. Sigmar Gabriel, visited the Iranian capital, Tehran. On this trip, he was accompanied by 120 business executives. Mr. Gabriel told the media about a number of signed contracts between companies from the two coun­tries but the size and detail of these contracts were not disclosed. Siemens is now under­stood to be participating in the development plan for Iran’s railways together with MAPNA Group (MAPN) and the Islamic Republic of Iran’s Rail Transportation Co., supplying components for 50 diesel-electric locomotives. There is speculation that the value of this contact could run into the hundreds of millions of dollars. Mitsubishi Germany will be involved in the modern­ization of Iranian gas turbine power plants. Iranian electricity companies have plans to im­prove productivity by converting simple-cycle plants to combined-cycle, using both gas and steam. Keller HCW is also understood to have reached an agreement to establish a brickfield in Iran. INTRA Industrieanlagen, the general contractor and SMS Group, the metal contractor, are the two other German companies that have reached agreements with Iranian entities during the delegation’s trip.

Written by Ali Karbalaee and Radman Rabii