Iran Weekly Market Report - 19.11.2015

The Tehran Stock Exchange’s main index, closed at 62,871 at the end of Wednesday’s trading session, recording a 0.3% decline compared to the previous week. The TSE All-Share Index slipped below the 63,000 level to record its lowest measure in November 2015. On the third trading week of the month, the TSE’s major sectors had poor performances as the Automotive and Oil Products industries decreased by 4% and 2.2% respectively. The Banking sector also slipped by 1.2%, while Non-Metallic Ores and Transportations & Logistics had the highest growth among major sectors increasing by 2.9% and 2.7%.

Low fluctuations of the TEDPIX dragged volatility to the lowest levels since January 2014. Compared to the previous week, the volatility level of the TSE All-Share Index has declined by 50% in the trading week ending on November 19, 2015. The limited fluctuations of the index has kept our technical analysis prospect stable. However the 50 day EMA reduced its gap with the All-Share Index to -0.5%, as the index’s daily changes have been less than 1% in the last nineteen trading sessions.

Also, the index of thirty largest companies by market capitalization, the TSE30 index, recorded negative returns on all trading sessions of the week. The TSE30 index slipped by 1.2% on a weekly basis as it closed at 2,680, going below the 2,700 level for the first time since mid-October 2015.

Similarly, the Average Daily Trade Volume (ADTV) of the market stood at USD 23.5 mil¬lion, 5.6% lower than the previous week. The ADTV measure has already dropped by almost 24% in two weeks, reaching its lowest level since October 2015. This is also reflected in the total traded values of the market’s top three value leaders. Mellat Bank, Iran Polyacryl and Iran Khodro had the highest total traded values this week with USD 6.3, USD 5.8 and USD 3.5 million of trades. The share price of Mellat Bank closed at IRR 1,935 (approx. USD 5.4 cents), 1.8% lower than the previous week. But Iran Polyacryl surged by 16% on a weekly basis as it share price closed at IRR 2,756 (approx. USD 7.7 cents). This is while Iran Khodro fell from its two month high of IRR 2,075, recorded on November 11, as it closed at IRR 1,897 (approx. USD 5.3 cents) falling by 8.5%.

Furthermore, the Iranian Rial depreciated against the U.S. Dollar and the British Pound this week. The Central Bank of Iran (CBI) set the official rate of USDIRR at 29,967, 3 Ri¬als higher than the previous week, while the free market U.S. Dollar rate recorded a 0.5% increase, reaching IRR 35,597. However, the Euro had a weak performance against the Iranian Rial as the official rate of the Euro was announced at IRR 32,092, marking a 0.5% decline. Also, the free market EURIRR slipped by 0.3%, were it ended up at 38,284 on Thursday afternoon. The official rate of the Pound Sterling experienced a 0.4% gain as the CBI set it at IRR 45,811. Similarly the GBPIRR free market rate rose by 0.8%, stand¬ing at 54,550.

In contrast with an agreement which was announced last week, where banks had stated they would reduce interest rates on annual deposits by 2%, (going from 20% to 18%), some banks’ executives raised doubts on whether this plan will indeed be implemented on November 22. In a setback to statements made last week, the executives mentioned that the reduction of interest rates should be decided by the Iranian Money & Credit Council. Governor of the Central Bank of Iran and the Minister of Finance & Economic Affairs have both stated the necessity for reducing interest rates due to a sharp drop in the country’s inflation rate (decreasing from 45% to 10.8% in two years). However, based on the latest comments made by officials, it is uncertain whether the Money & Credit Council will decide on interest rates in its meeting scheduled to be held this week. Mr. Tayyebnia, the Minister of Finance & Economic Affairs, speaking at a conference in Tehran, argued that some preparations are needed before an interest rate reduction can be implemented. Some experts believe that a cut in interest rates can benefit unregulated credit institutions, if they do not abide by new interest rate policies. As these institutions are not under the supervision of the Central Bank, they can offer higher interest rates on deposits, therefore skewing the deposits market share in their favour. This could potentially have an adverse effect on the banking sector, and the economy.

Moreover, the implementation of the government’s economic stimulus package plan, which was initiated last week, was partially stopped due to a large unanticipated participation by the public. A part of the plan involved the provision of consumer loans to the public for the purpose of purchasing Iranian manufactured or assembled automobiles. As the number of cars sold surpassed 110,000, the plan was halted by the request of the CBI. Iran Khodro, the largest car manufacturer in the MENA region, sold over 65,000 cars during the one week period when the plan was implemented. These sales can increase the company’s annual sales prospect by approximately 13%.