There were some important factors that have influenced Iran’s Capital Market as well as political situation during June 2016 such as: cutting interest rate by Central Bank of Iran, Brexit, volatility in oil price mainly because of reduction in Venezuela’s oil production, improving Iran’s rank in FAFT (Financial Action Task Force). Perhaps it would be possible to discuss why Iran’s Capital Market has not revealed high negative reaction as same as other international markets. In this article, a brief overview of current condition of Iran’s capital market has been analyzed.
The above factors which affected the Iran’s Capital Market during June 2016 will be discussed below in more details:
-Cutting Interest Rate:
One of the most important achievements gained by Rouhani President of Iran was decrement of inflation from 40% to around one digit in 3 years. Iran’s inflation in five years has been shown in the chart below:
As a result, the Central Bank of Iran was able to cut the interest rate on banks deposits from 28% to 15%. Especially this reduction has happened from 18% to 15% during the recent month. This decision is leading a bank-based financial system into a more market-based one. The high interest rate on banks’ deposits was mainly to control inflation and now, cutting the interest rate on banks’ deposits can attract more fresh money to other markets such as capital market. Although most of people expected that this issue will have a positive effect on Iran’s stock market, it did not play any significant role in short term. However, it would be probable that this can persuade Iran’s economy to grow in long term. As a matter of fact, this desired adjustment in investors expectations have not materialized as quickly as some had hoped. As a result, most of the people, especially who are risk takers prefer to invest in other markets rather than deposit their money in banks. Furthermore, by cutting interest rate, P/E would be increased. As a result, the value of market will be increased too.
Nowadays, Brexit is one of the most important events in international markets, but Iran’s capital market has not revealed high negative reaction as same as other international markets; it could origin from some good news have been heard. The biggest advantage of Brexit for Iran is that the bargaining power of Iran can be increased in the negotiations. Because UK has lost a big market which is EU and this can be attractive for Iran. Unfortunately, there is a negative point that Britain may lose its economic and financial power and by this way, trading would not be possible such as before, not only by Iran, but also by other countries. There is an unanimity in Iran that Britain keeps its important role in navigating the Middle Eastern policies of the West and Europe, even after its leaving from the European Union. By this way, the outcomes of Brexit will be multi-dimensional and Iran will face the opportunities and challenges that it will suggest. After the subsidence of Brexit’s excitement, the commodities and oil price have been increased and the main reason for oil price jump was mostly because of reduction in Venezuela’s oil producing and also, exporting of oil in Dollar currency may quench more profit for our country because of appreciation of Dollar currency caused by Brexit.
-Improvement of Iran’s rank in FAFT:
The Financial Action Task Force (FATF) is the global standard setting body for anti-money laundering and combating the financing of terrorism (AML/CFT) made decision to suspend some of sanctions against Iran in the following year on 19 Jun 2016. It provides Iran with the opportunity to get away from difficulties have been emerged by the sanctions. That sounds perfect for foreign investors because they could trust more to invest in Iran.
Tehran’s Exchange Dividend and Price Index for June 2016 has been shown in the graph below:
To put it in a nutshell, although our market had been experienced some negative issues based on some important events had been occurred in this month, it would be expected that this trend is not going to last for long. All in all, it would not be possible to predict the market trend in the future, especially the effects of Brexit on our market is unclear at the moment. Mostly, the positive effects of cutting interest rate and improvement of Iran’s rank in FAFT are less vague than Brexit’s. The low downfall of TEDPIX shows how cutting interest rate and improvement of Iran’s rank in FATF were important to neutralize the primary consequences of Brexit on our economy. “Iranian capital markets need fresh blood to connect to international markets. And, in the same way, I think foreign investors are looking to Iranian capital markets. Why? Because the Iranian economy as a whole is strong, it has a good [investment] infrastructure and can be considered an emerging economy with plenty of opportunities. As CEO and board member of Sina Financial and Investment Holding, Behzad Golkar, said in an interview with Arabian Business.