Recent boom in Iran's stock market 'false prosperity'

In recent months, the Iranian government has consistently pointed to growth in the stock market index, attempting to attract investors to the Tehran Stock Exchange (TSE), the country's main stock exchange authority.

Iran's stock market was on the rise for an extended period of time despite the country's high inflation and low currency value. As of late August, however, the index has fallen and the decline continues.

TSE index fell by 27,000 units on September 8th, a sharp decline over its recent performance. Some economists say the government plans to use the National Development Fund to further support the capital market. In other words, it is making an effort to keep the stock market active by way of an artificial boost.

In early September, government spokesman Ali Rabiei called "allegations of stock market manipulation" baseless, claiming that "we protect people's assets in the stock market".

Government contributes most to TSE boom

Many economists believe the government's monetary policies are unsuccessful attempts at declaring that the stock market is "booming", whereas economic and banking sanctions have prevented the government from exporting most resources.

Meanwhile, there are a few other contributing factors to the TSE growth, albeit in a limited sense. Due to the US "maximum pressure" on Iran, Iranian importers are severely restricted and have therefore invested in stocks and helped the TSE grow to some extent.

Other factors include the decrease in real estate transactions and the industrial recession, both of which have led investors to the stock market.

The government resources injected into the capital market had the biggest role in creating the boom. But experts say that, as in the past, this will not bear positive results.

In the final week of August, Kazem Mousavi, a member of the Iran Majles's Economic Committee, said cash has indeed been injected into the stock market "in recent weeks". Even so, the TSE's index decreased by 8.3% in the last days of August. This marked the TSE's largest decline in the past 20 years.

Mousavi is among a limited number of officials warning of a stock market bubble and the "loss of people's capital" as a result. He warned people "not to rely on stock market profits in the long term".

Boom in stocks 'superficial, temporary'

Capital market expert Hassan Zamani told Al-Mashareq the decreased value of the rial against the dollar (about 40% in the current year) resulted in an increase in companies' shares.

"The bubble created by the rise in stock prices is superficial and temporary," he said.

Many Iranian economists say the boom in Iran's stock market is temporary, but there is no consensus on how long it will continue, he said. Recent developments indicate the TSE may crash in the near future.

Economist Moloud Zahedi told Al-Mashareq the TSE's fall is "inevitable", adding that the timing of a looming crash depends on the extent of government intervention and the amount of liquidity transferred to it.

"Next year, we will definitely face further decrease in the exchange rate of the rial against the dollar," she said. "Sanctions will further reduce the size of the economy, and the government will be forced to print more money to inject into the capital market."

Stock market: government tool

Unlike in countries with market-based economies, fluctuations in the TSE index are not indicative of economic elements. The economy is controlled by the government in Iran and the stock market is virtually a tool of the government and its policies.

The TSE index quadrupled in early 2020 and continued to rise, reaching two million units in August. In late August, however, its decline began and by September 9th, the index had decreased by 430,000 units.

Given the current economic circumstances, the TSE's growth does not bear a real meaning.

According to official data, Iran's economic growth declined by 3.5% in the first quarter of the current fiscal year (2020-2021).

The World Bank reported that Iran's gross domestic product (GDP) declined by 7.6% in the first nine months of the previous fiscal year (2019-2020), compared to the same period the year before that.

Iran's economy is projected to be about 5.5% smaller by March 2021, compared to the previous year, a projection made worse by the coronavirus (COVID-19) pandemic.

Meanwhile, the Central Bank of Iran reported the country's inflation rate as 41.2% in the 12-month period ending March 20th.