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Iran's Stock Exchange Rally's Despite Contracting Economy

By James Burgess | Wed, 12 December 2012 22:49 | 0

Western sanctions have severely restricted certain important sectors in the Iranian economy, leading to a weak currency, high unemployment, and a double-digit inflation rate. Yet despite the contraction of the economy, the country’s stock market has experienced a 40% rally over the last four months. With some analysts even fearing the risk of a stock market bubble.

One of the reasons for the increased interest in investing in Iranian listed companies is that the huge devaluation of the currency has made many of them much more competitive; Sina Chemical Industries has seen its share price increase by 145% since October.

Another reason for the interest in the stock market is that the high inflation has left wealthy Iranians, who are unable to use foreign banks, looking for a relatively safe place to put their cash before it devalues to nothing.

One anonymous economist in Tehran explained that, “there are some people who got extremely rich in the past few months, again because of the devaluation of the unofficial rate of the rial. They don't really have the option of sending their money to banks abroad or investing in other countries, so they invest in the Tehran Stock Exchange.”

Related Article: How Bad do Sanctions Really Hurt Iran?

Some companies have also benefitted from the large gap between the government’s official rate for the rial, and the currency’s free market value. The rial sells for about 30,000 to the US dollar on the open market, but the government has maintained a stronger reference rate of 12,260 to the dollar for the import of some basic goods.

The economist noted that, “the stocks of some companies such as those in mining industries and base metals have become popular as a result;” such as Chadormalu, a producer of iron ore concentrate, whose share price has increased by 67% since October.

Hossein Ebneyousef, the president of International Petroleum Enterprises, a US-based oil and gas consultancy firm, said that, “other investment opportunities for Iranians include gold, but gold prices have risen considerably as well and are also linked to the dollar so that's not a real option. The next traditional option is real estate, although that too is getting very expensive and unaffordable;” in Spring prices of apartments in Tehran were 31% higher than a year ago.

By. James Burgess of Oilprice.com

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