Iranian Financial Markets & the Nuclear Deal
The current recession and prices’ falling trend in Tehran Stock Exchange has been longed for the last 16 months. It is believed that the economic recession is behind this downward trend since early 2013 despite the efforts of the regulatory or sudden positive shocks in the market. The key question is that up to where this trend could go and where is the turning point?
Providing an exact answer to this question seems impossible. Most big businesses in Tehran Stock Exchange or OTC market predicted reductions in their profit margins and even in some cases are facing operation losses. Since the prospects of economic growth in the short-term and medium-term courses are not encouraging, a bright light of hope in improving financial market outlook could be Iran and world powers agreement. The agreement will improve domestic industries growth prospect, significantly. It is expected that by elimination of restrictions in international trade and Iran’s re-joining global markets, the access to financial resources and new technologies will reduce the transaction cost and the time required to do business.
The end result of this process is profitability growth of companies; hence increase of equity prices in the market. But is all this going to happen overnight? Obviously, the answer is no. Studies have shown that the complexity of legal regime in sanctions and the high number of sanctions imposed by the US, Europe Union and the UN Security Council, would prevent the Iranian economy to benefit from the positive effects, immediately.
In addition, local businesses which have been kept far from global markets for a long time are sluggish to adapt with global business community. On the other hand, foreign investors interested in Iranian industries require sufficient time to study the market fundamentals, domestic legal framework and anticipate their exact requirements. But the good news is that the positive effects of the agreement, earlier than other markets, would be appear in the capital markets.
The Iranian capital market has its own specific characteristics. It has high sensitivity to news and information affecting the company's future performance. The market will react to the sanctions resolution and will grow though the continued growth depends on the trend of negotiations and the presence of foreign investors in Iranian market. In other words, if the nuclear deal with Iran will lift all the sanctions and the release of funds associated countries, immediately, then the growth is continuing and could lead to the return of booming conditions. Otherwise, the phenomenon of cross-market growth, seems more likely. Finally, the need for capital market authorities’ case scenarios for each of the events is evident.
Market authorities should have strategies to control large fluctuations in the market while maintaining the integrity of the capital markets to benefit from long-term positive outcome of nuclear deal.
CEO of Amin Investment Bank
Originally published in July 7, 2015 in Hamshahri Online in Farsi language.