Iran's Economy Minister Shamseddin Hosseini said in Tehran today that the city’s stock exchange index grow by 75 percent during the current Iranian calendar year that would end on 21 March.
The total market value of the Tehran Stock Exchange (TSE) passed $100 billion mark this month. Telecommunications, steel, and auto manufacturing are among the TSE's main market movers. TSE was founded in 1967.
Hosseini also said that the government subsidy cuts on energy products has reduced the consumption of gasoline and diesel by 20 percent.
Photo: IRNA file photo of Tehran Stock Exchange
It would be interesting to see where this 75% hike in index coming from. In the absence of any foreign investment, then the assumption can only be that this index growth is purely domestic. In other words there are genuine inviduals and private sectors that are interesting in Iranian market. However, this does not go well with the known fact that until couple of months ago people were queing up to buy dollars (unless someone can argue that TSE runs on dollars) and were showing their contempt for investments in the local currency. Even the most boyant market real estate is suffering from recession and judging my the fact that bricks and mortars are supposed to me a sound investment then I fail to see how this %75 growth come from except if the market is skewed somehow. Thta is simply government organisation are selling and buying from each other. It is also notable that there is virtually daily complains of workers on many industries about the late payments of wages. If these companies are doing so marvelously and their balance sheets look so healthy, how come they cannot afford to pay wages?
ReplyDeleteAlso on another note there seems to be very few stock exchanges across the world that have shown real growth during the last year. On the surface of it, it is highly unlikely that TSE can fair better given the dire state of Iranian economy.
Anon 5:26 PM,
ReplyDeleteThe growth percentages are of course relative, 75% over what. The market capitalization of TSE, which is the only major exchange in the country, was probably too low to begin with, so a huge correction could theoretically be sustained. A $100 billion market capitalization in a $300 billion plus economy could be sustainable. But the question would be why now? Why didn’t the market grow in previous years to realize a capitalization approximating the actual economy? Having said that, the concerns you are brining up are valid. The last thing the country can afford is bursting of a bubble in the market.
As I stated in my notes above, markets grow if there are underlying balance sheets that stating that the companies are performing better with healthy price/earning ratio that hopefully outperforms the current inflation rate in Iran. It is interesting that as you stated this growth is taking place now, compared to the previous administration (Khatami et. al.) where there was a degree of optimism in the country's international and financial outlook. May be the whole thing was skewed by the sale of the telecommunication of Iran which was government monopoly and as we now know it was taken over by the Guards' front companies.
ReplyDeleteAccording to conservative estimates, the Guards directly or though proxies control 40-60% of Iran's economy. So where does this leave the average investor in the street?
I am afraid although we dearly like to see some progress, the realities do not stack up.
Anonymous,
ReplyDeletePlease go back and read my article on the stock exchange surge written a while back on this blog. Some of your facts and references are not more than western media propaganda spread to undermine Iran's economy. I got back today from a Convention on tourism in my part of Iran and I assure you there are many new projects ongoing by private investors that would shock an outsider. The amount of loose capital in this country is astonishing. Surprisingly, I have seen that sanctions have locked in billions of dollars that in any other country would be outflowing as much as its inflowing but with Iran, capital stays here, is invested in areas where an investor is assured of a high return of profit with little risk of being confiscated by foreign governments.
Hi,
ReplyDeleteAT mentioned:
".... but with Iran, capital stays here, is invested in areas where an investor is assured of a high return of profit with little risk of being confiscated by foreign governments"
You must forgive me but that is absolute falacy if I may say. What is your definition of high return on profit? Which industry in Iran (in a legitimate way that is to say) is providing high return on investment above and beyond the inflation. In so far as I know the real estate in Iran as a barometer of all these investments is in a recession. People are selling their kidneys because they need money, there is no virtual foreign investment and very little interaction between the business community in Iran and others and you guys are still fatansizing about the miracle in TSE.
So basically as you state Iranians are producing goods and they are all bought in the country, since there is virtually very little export of non oil products. Even Belarussia is considering stopping the assembly of Samand in that country. I heard today that Abadan refinary workers on the third phase of refinery project have gone on strike demanding 6 months of their salary that has not been paid. The same applies to Iran Khodro workers. As I stated before, if the investment outlook is so good how comes these companies cannot afford to pay their workers. In light of this, which industry in Iran is worth investing the private sector money assuming that the company interested in investing is not run by the Guards? Before bringing in the usual divergence like USA and Israel etc, let us talk figures. The Iranian Central Bank announced that the inflation rate for 2010 stood at 10.1 percent. The inflation rate for the same period in 2009 was also 10.1 percent. Do you really believe these figures? Let us assume that the real inflation is anything between 20-30%. So the invester in TSE expects return on investment (ROI) better than 30% to beat the inflation and make a little for himself/herself, otherwise the investment is not worthwhile. Traditionally stocks go higher on the basis of good outlook for the economy, investment in new products and services and prudant fiscal policies. Excluding the purchase of gold by the government which was I believe was prudent, given the hike in price of gold, Iranian fiscal policy has been near disaster. I recall a while back the government decided to sell dollar and buy Euro. When Euro dipped they had no choice but to sell Euros and buy dollar back at higher prices. This was a totally political move devoid of any monetary policy.
So how is it that now, with sanctions in place, the country going through a hard time politically and a Bazaar on and off on strike with large sectors of workers demanding their backdated wages, the TSE continues to defy all logic and reach new highs? In any other country the first that would have been affected by such things would have been investment and stocks. I am afraid I fail to see how you justify all this?
Your comment: But the question would be why now? Why didn’t the market grow in previous years...
ReplyDeleteThe Tehran Stock Exchange did in fact grow in previous years. From wikipdia: "TSE, which is a full member of the World Federation of Exchanges and a founding member of the Federation of Euro-Asian Stock Exchanges, has been one of the world's best performing stock exchanges in the years 2002 through 2010."
Also see"Iran is among the few major economies that has maintained positive economic growth despite the 2008 global financial crisis"
Sourced: http://en.wikipedia.org/wiki/Tehran_Stock_Exchange
David Hannaford mentioned an outlook from wiki about TSE outlook. However, if I may say as much as I find wiki info useful, the info about TSE is totally subjective.
ReplyDeleteMost other forecasts put Iran's economic outlook for 2011 very modest in light a number of factors. Most because of severe cuts in subsidies the expected growth rate forecast is around 2% with inflation rising to 20.5%. In contrast China's growth is forecast at 7.5% with inflation running around 3.8%. However, the striking fact is that even Shanghai Composite Index can only manage 8.5 to 9% annual growth (source Reuters) under the booming conditions. So unfortunately as much as we would like to see progress in TSE, the figures do not simply add up.
You pick out facts A,H,and N in the alphabet and you think you have described the whole language.
ReplyDeleteBecause Bandar Abbass's PHASE 3 expansion plan hits funding issues does not mean the entire oil industry is down, or for the fact that Iran's economy is in "dire" state. You fail to point out that the petrochemical exports are almost up 50% to 12$ billion.
Because months ago the gold sellers in Tehran bazaar striked for an increase of 3 PERCENT VAT tax, does not mean Iran's economy is in "dire" state. You fail to mention that they would pass on the 3 percent to their customers and in reality they striked at opening their hidden books to the tax collector.
Because you fail to see the billions going from the housing market into the stock exchange, does not mean Iran's economy is in "dire" state.
YOU FAIL TO SEE IT, so please stop quoting random facts and numbers to the state of Iran's economy. Please take a trip down to Iran and see for yourself the billions being invested all around you!
Interesting you noted IKCO and profitability.
ReplyDeleteIran-Khodro Company (IKCO), was elected as Iran's best company in the 13th Conference of Iran's Top 100 Companies (IMI 100).
Having sold $11.7 billion worth of products in 2009, IKCO ranked first among Iran's top 300 companies.
Considering profitability, IKCO was recognized as Iran's second company earning $1.06 billion, while it ranked the seventh in this section last year.
http://english.farsnews.com/newstext.php?nn=8912031294
A. T. mentioned:
ReplyDelete“YOU FAIL TO SEE IT, so please stop quoting random facts and numbers to the state of Iran's economy. Please take a trip down to Iran and see for yourself the billions being invested all around you!”
First these are not random facts and numbers. They are true figures. BTW you do not need to take the trip to Iran to see billions invested. I think you will be prudent to see the amount of money and artefacts siphoned out of Iran in recent years.
Facts, facts!. If you have facts to backup the picture you are painting please bring them up. I do not think anyone serious in this blog will believe in the so called billions invested. They have had five or six central bank governors and Ministers of Finance replaced in the past few years. An average Iranian (who should benefit) from these so called billions invested is in deep hardship. Contrast this to the so called institutions which are running 40-60% of Iran's economy and do not pay any taxes! That is NOT the meaning of a free market economy.
The current administration in Iran is paying off cash to lower income population and has agreed 20% of the shares of privatized companies to the poor, and the subsequent dividends paid to them. It appears to me that this 75% performance hike of TSE comes from the fact that government is artificially keeping the dividend of these companies high and by and large that may be responsible for this miracle performance in TSE. I believe this approach is used as tools to boost the regime's popularity. They are also an important means of making poorer income people more dependent on the government for their income, thus reducing their motivation to take part in activities to overthrow the regime. Think about. How on earth these so called dividends can be kept up considering the poor state of Iran’s economy. The only way to think of is by artificially skewing prices through front companies buying shares and keeping price up. In effect this is money paid by the movement as indirect subsidies. There are billions of money missing from the so called oil stabilisation fund. After all it might not be that bad idea if it has ended up as dividend to feed the poor.
IKCO must be doing brisk export!
ReplyDeleteFrom http://www.speroforum.com/a/48683/Belarus-Considers-Scrapping-Car-Production-With-Iran on 16th February 2011
MINSK -- The Belarusian government says it intends to stop assembling Iranian Samand automobiles at a plant in Minsk, RFE/RL's Belarus Service reports.
First Deputy Prime Minister Uladzimer Syamashka told parliament today that since the beginning of the Belarusian-Iranian project five years ago, only 1,000 Samand cars had been assembled in Belarus.
Syamashka said the car's quality was considered to be mediocre and it was overpriced.
Well it speaks volumes for this high performer company (excluding the workers strike etc as well). Even Saipa seems doing better.
There is absolutely no rational explanation for this 75% rise where productivity has been falling in the last 3 years and over 90% of the state banks are highly indebted/geared such that they can hardly afford to lend any serious money to TSE companies for growth and investments. So again where this boom is coming from? They do not reflect the profitability, they do no reflect the confidence in the economy, so it proves that it is the reflection of the injection of new demand and money by the government owned front companies. I agree with Mr Uskowi that this is kind of a bubble. But it is a state-created bubble, instead of sort of one created by market forces in a free economy!
ReplyDelete