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Iran's Stock Market Begins To Fall After An Astronomical Rise In Four Months

Tehran Stock Exchange. July 2020.

As the overall index of the Tehran Stock Exchange (TSE) fell sharply for the fourth consecutive day on Sunday, the Islamic Republic President Hassan Rouhani tried to instill optimism saying, "corrective fluctuations in the stock market are normal."

After the fall of 65,000 points of the TSE index on Tuesday and about 25,000 on Wednesday last week, Tehran Stock Exchange experienced a drop of more than 72,000 again on Saturday and 90,000 on Sunday. The slide is a historical record in the fall of the country's stock market index by sheer points.

Responding to the TSE crash, the Islamic Republic President Hassan Rouhani maintained, "Capital market experts consider correctional fluctuations in the stock market as normal and natural. Nevertheless, inconsistencies in statements and actions should be avoided."

However, he did not elaborate on the "inconsistency in statements," but his administration had previously warned against "inconsistent" comments during crises such as coronavirus outbreak.

The Tehran Stock Exchange index was around 500,000 units as late as in March but aggressively climbed to more than two million points by early August without any economic fundamentals backing its rise. While the country is struggling with stagflation quadrupling the total index means quadrupling the value of mostly government-controlled companies' shares. Experts and the media regarded such developments as surprising and suspicious.

So far, many warnings have been issued concerning a huge bubble in the TSE; either created or encouraged by government manipulation.

The seemingly unstoppable rise in the stock market finally came to a stop last week and in a few trading sessions it fell by more than 250,000 points, dropping to 1,880,000 units on August 16. Still the fall is not a total collapse. The index has pulled back some 10 percentage points.

In recent days, government-owned giant corporations such as the Persian Gulf Petrochemical Company, Mobarakeh Steel, National Iranian Copper Industries, Isfahan Oil Refinery, Tehran Oil Refinery, Islamic Republic Shipping, Telecommunications, and Ghadir Investment Company have lost significant value. These companies have always had the most significant impact on the stock market.

It is not clear whether the decline in the stock market will continue in the coming days and weeks. Nonetheless, small investors trying to make money in a depressed economy have poured more than forty trillion rials (approximately $950 million) in the stock market this year. Therefore, the sharp decline could hurt many ordinary people.

Furthermore, according to the budget law, the government had planned to sell assets worth 49.5 trillion rials from the beginning of the year, which is ten times more than last year. Most of these assets are being put on the market through the stock exchange, which raises suspicions about the government's deliberate manipulation of stock values to make more money. Many of the companies it controls and tries to offload are money-losing enterprises.

Despite warnings of bubbles in the TSE by experts, the Iranian government has been campaigning extensively in recent months to attract the public to the stock market.

Meanwhile, President Rouhani, has stopped short of explaining why the overall stock market index quadrupled in five months while the country is facing an economic crisis. Moreover, he has not revealed why the TSE lost 250,000 units in the past week, and what will be the fate of people who bought shares in the past few months partly by government encouragement.

In his remarks on Sunday, Rouhani referred to his administration's decision to implement a "stock market strengthening policy" and said, "Offering government and public's diverse, profitable and secure assets in the stock exchange will continue in an orderly and sustained manner, as planned."

Since the beginning of the new Iranian calendar year, the country's national currency, the rial, has lost more than 40% of its value against foreign currencies. At the same time, due to the housing crisis, the industrial sector's recession, and widespread government propaganda to attract people's assets, many Iranians have rushed to the stock market.