TSE (Tehran Stock Exchange) index has decreased 1,058.4 on Saturday (2016/11/06), it was a plunge after around one month of moderate trades. Still any obvious reason for that is not mentioned but in my opinion, mostly it is because of investors’ over-reaction. After JCPOA agreement, vision of investment for Iranian companies has changed and the horizon of investment has become bright, so liquidity was guided to stock market, value of shares for various companies increased dramatically. But gradually reverse pattern has emerged due to the correction has occurred about overreaction to the realistic effects of sanction lifts and no practical progress had happened. Problems in money transferring to Iran was a major reason to cool down investors. U-turn mechanism prohibit other countries to use US dollar while trading with Iran.
According to Financial Times, U-turn permitted US banks to process payments from Iranian entities so long as the transactions were initiated offshore and passed through the US only for dollar clearing before being routed back to banks offshore. The U-turn exemption was revoked in 2008 (Financial Times).
During 26th March to now, Ownership transfers of stocks are mainly bidding by individual investors and asking by institutional. Below diagram illustrates entering individuals and institutional to different industries.
Another factor that has major effect on stock markets is interest rate, higher interest rate in comparison with inflation rate in Iran make bank deposits profitable with minimum risk. Inflation rate of Iran is about 10% while interest rate is 18% (per year) so each investor can earn 8% free of risk by depositing money in banks. Furthermore, high interest rate causes enormous financial costs to Iranian firms. Combination of earning free risk profit and high financial costs will lead money to migrate from production to deposits.
Recently, news say that interest rate will be decrease to 16%, in valuation theory price of stocks has reverse relation with interest rate so when interest rate decreases, it causes stock market to have a growth.
It is important to mention that till now money and credit council decide how much will be the interest rate, but this is the first time that banks have lowered the interest rate by their own.
In conclusion, the existing gap between the banks` interest rate and inflation rate cannot last for long because the main target of officials is to bring the growth to economy and it is expected that the interest rate should be 2% higher than inflation. Therefore, it seems that we have to expect more decrease in interest rate by bank in a near future.
