Financial Markets E1:R2
◢ Performance at the Tehran Stock Exchange is flat ahead of shareholder annual general meetings
◢ Dollar demand is rising in the face of regional instability and seasonal demand for summer travel
The TEDPIX index moved mostly in the negative to close 0.38% lower this week. Losses are attributable to trading activity at the beginning of the week on Saturday. Trading volume decreased by 12.7% to IRR 20,160 billion over the course of the week.
Decreasing inflation and the government’s decision to lower lending rates are generally viewed as positives for capital markets. Looking ahead, economic plans for the last year of Rouhani's government prior to elections are expected to be a powerful driving force in markets. Many market actors are seeing stock prices return to their pre-2015 levels, before the nuclear deal was signed.
The past week has seen the latest in a round of shareholder meetings. Meanwhile, companies are preparing to release first quarter financial reports for year 1395 of the Iranian calendar (21 March-May 2016). The past week has seen the latest in a round of shareholder meetings. Meanwhile, companies are preparing to release first quarter financial reports for year 1395 of the Iranian calendar (21 March-May 2016). Leading up to earnings reports in the next three weeks, trading activity is set to increase as traders take positions, particularly in industries that have been underperforming in recent weeks, such as banking and construction.
Islamic Treasury Bills
Proceeds from Islamic Treasury bond sales were primarily used to repay debts to non-governmental enterprises. However, the same enterprises constantly face concerns about the government’s liquidity as generated through Islamic Treasury bills. To address those concerns, the government has devised a special mechanism that enables emergency withdrawals from available funds to pay its debts that arise from such bonds, minimizing the likelihood of a default on Islamic Treasury bonds.
Islamic Treasury bills are generally attractive given their low risk and high liquidity, as there is a major secondary market for them on the Farabourse. Additionally, Islamic Treasury bills differ from ordinary bonds given their short duration and the structure of their yields. Islamic Treasury bills mature in less than a year and their maturity dates usually occur within 4, 13, 26, and 52 weeks. These bills have no nominal interest but are sold at significant discounts on face value.
Dollar Demand is Rising
The Iranian Rial fell by 0.8% the past week to settle at IRR 35,150 to the dollar. Significantly, the Rial has settled at above the 35,000 mark for the first time in weeks. This is in contrast to previous weeks when markets saw injections whenever the IRR rose to more than 35,000 to the dollar.
Early signs of rising demand in the dollar market appeared after the government discontinued the availability of discounted dollars for the buying of specific commodities. Accordingly, analysts are expecting to see a rise in demand for the dollar in the market over the next weeks.
Also, recent developments in Turkey and the impacts of the recent failed coup are expected to undermine the financial markets and most importantly help push up the price of the dollar. Additionally, the coming holiday season will see Iranians travel abroad, creating seasonal demand for travel dollars. As usual, the government will be expected to intervene to keep the price of the dollar down by injecting extra dollars to the market.
We believe that the government lacks the required powers to help stabilize the dollar in the short term and the dollar rate is likely to remain around IRR 35,000. Yet, the government remains committed to achieving a single-rate dollar exchange, and so in the medium to long-term the rial should continue to strengthen following the trend of the previous year.