Iran’s President Hassan Rouhani has described "the astounding rise" of the general share index at the Tehran Stock Market as a sign of the strength of Iran's political system.
Speaking at a cabinet meeting in Tehran on Wednesday April 29, he said, "Foreigners say that the people in Iran do not trust the government. They are lying. The Stock Exchange shows that they are lying."
It goes without saying that the Tehran Stock Market is experiencing an exceptional period, witnessing one economic recession after another. But amazingly, in a matter of only one year, from April 2019 to April 2020 the general index has risen fourfold from 214,000 points to 878,000.
This hike is exceptional, by any world standards, but what makes it unique is that the phenomenal rise has taken place amid Iran’s worst economic crisis in contemporary history triggered by U.S. sanctions on its oil exports and international banking.
Meanwhile, like most other countries, Iran is having a hard time under the pressure of the COVID-19 epidemic.
The growth in stocks in Tehran coincides with the downfall of the most well-known indices such as Dow Jones and NIKEI. So, it is not surprising that "foreigners" as Rouhani calls them, are surprised by the development at the Tehran Stock market as it is inconsistent with the trends in the international markets.
It appears that Rouhani believes the stock market reflects the mood in the society, but one of the reasons for the rush to the stock market is government manipulation of interest rates and the false hopes it gives small investors. One small misstep can dissipate the rise in stock markets and leave thousands of people with no investment.
An investment market should follow rational and logical criteria. But in Iran, one can ask what the hike in stock prices is based on? Just imagine that a foreign investor who has found out about the astonishing rise in Tehran and is interested in investing goes to an expert company to learn about the current situation and prospects in the Iranian market. The experts will tell the investor that:
1-According to the International Monetary Fund, Iran's economic growth rate has been minus 5.4 and minus 7.6 in the past two years and that it is facing another 6% downfall in the current year.
2- The IMF has assessed the inflation rate in Iran at 31% and 41% in 2018 and 2019 and its forecast in the current year is 34 percent.
3- Iran's annual budget in the current year has a deficit of 40 to 50 percent.
4- Before the COVID-19 epidemic Iran had 3.2 million unemployed workers. The country's parliament's forecast says another 2.8 million to 6.4 million people will lose their jobs this year.
5- Under U.S. sanctions, Iran's oil exports have diminished to one sixth and one seventh of the projected figure and the price of exported oil has fallen from 60 to 10 dollars per barrel.
6- There is heavy presence by government companies and respect for ownership is at its lowest level while there is a high degree of financial corruption that makes the situation unfavourable for business.
7- In the international scene, Iran is an abnormal country, it is under heavy international sanctions and its financial and monetary channels are blocked.
8- At the regional level, its relations with its neighbors are constantly facing tensions.
There is also a collection of big data about individual listed companies in the stock market which assess political and geopolitical risks and guide investors accordingly. Most companies trading in Tehran are loss-making entities with government ties.
Investment in Iran is a dangerous game. The Tehran Stock market takes small savings of Iranians hostage and plays with them without any economic logic. In the jungle of stock market, forex market, housing and even car markets, the Iranian investor goes from one to another in bewilderment.
Rouhani accuses foreigners of lying but fails to see that Iranian investors are worried. The reason why some Iranians rush to the stock market is that they anticipate high inflation and a dramatic fall in the government's revenue, so they buy shares to save their savings. But this cannot be the only reason. The migration to stock market is unprofessional and dangerous.
Some experts attribute the move to the manipulation of markets by the government. The government is facing ever-increasing bills while its oil and tax revenues have dropped for reasons of a failing foreign policy and the ongoing epidemic. Selling government shares in failing companies can provide a source of income. That is why the President and his economic officials try to reassure the people of government's support for their investment.
Dr. Davoud Souri, an economist in Tehran has characterized the government's support for investment in stock market as "meaningless" and asks what does it mean? "Will the government compensate possible losses? The only thing the government does is to sell its shares in some companies but leave the management of those companies to its often-inefficient managers," he wrote in the economic daily Donya-ye Eqtesad.
It is not just "foreigners" who do not trust the Rouhani administration. Alef website, affiliated with Iranian politician Ahmad Tavakoli described the Tehran Stock market as the biggest Achilles Heel of the Iranian economy," and accuses the government of pushing millions of inexperienced people into this high-risk game."
A point to note is that the petrochemical industries and refineries whose shares are in high demand at the Tehran Stock Market are making losses because of the fall in oil price and demand in the market.
We might soon witness a long throng of small investors who lost their modest savings.