Iran’s Bizarre Share Prices

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Iran’s Bizarre Share Prices

The Tehran Stock Exchange is defying gravity. Could Ahmadinejad have a political stake in keeping share prices artificially high?

The Iranian economy has certainly seen better days. With rising unemployment, high inflation and West-imposed sanctions, to say that it’s going through a challenging period is something of an understatement.

And yet for the Tehran Stock Exchange (TSE), things have never been so good, with the TSE hitting an all-time high earlier this month when it crossed the 16,000 threshold.

To put its rise in perspective, the 43-year-old TSE’s value has since the beginning of the current Persian year that began on March 21 seen its value increase by more than $11 billion, bringing its total value to $75 billion—a 17 percent increase in less than 6 months.

But although some have welcomed the TSE’s meteoric rise, the exchange has also attracted the unwelcome attention of those who suspect the numbers are being fiddled. Enter the Islamic Consultative Assembly (or Majles), which has now ordered an investigation.

‘In Iran we have a problem with figures and statistics,’ said Mohammad Ghasim Osmani, a member of the Majles planning and budgetary commission. ‘The statistics produced (by the government) face problems. Even if the figures produced are correct, the performance of the Tehran Stock Exchange must be scrutinized, and I agree with the plan to probe and investigate the TSE’.

Amongst other things, the investigation will focus on the 150 people who oversee the TSE’s activities, to see whether their management techniques have been responsible for the 3000-point rise in the TSE index since March.

Another cause for concern has been the changeover of the software system. No one denies that the TSE needed a software system capable of managing the increasing number of trades. Indeed, the request for a new system was made in 1999, but took nine years to be fulfilled. But the problem is, according to Tehran Today, that all records regarding share prices and other information about the TSE prior to that date have been deleted, meaning all the monetary information regarding shares is based on data after the change was made, in December 2008.

Sceptics also note that the TSE has suddenly started to ignore domestic political events. Until recently, domestic and foreign events impacted the exchange’s performance, a good example of which was prior to the 2005 presidential elections. A day before the second round run-off between Akbar HashemiRafsanjani and Mahmoud Ahmadinejad, the TSE index rose by 71 points on expectations of a Rafsanjani win. However, the price fell by 126 points on the announcement that Ahmadinejad had won.

And the slide didn’t stop there. In part on the back of unfavourable remarks Ahmadinejad made about the TSE prior to his election (he likened it to gambling) the TSE went on to lose 466 points within 2 weeks of him being elected.

So how is it that now, with sanctions in place, the country going through a rocky period politically and a Bazaar strike costing the government $4 billion after only two days of strikes, the TSE continues to defy all logic and reach new highs?

Some analysts argue that the recent jump in share prices is due to a better-than-expected performance by a batch of large firms including SAIPA (automobiles), Foolad Mobarake (steel), Parsian Bank, Chadormalu Mining & Industrial company and the Mokhaberat company of Iran (telecommunications). They say the jump in share prices is down to an increase in demand in the global and local markets for their products. If this is the case, it is indeed positive news.

But regardless of possible growing domestic and international demand for the products of such companies, other commentators believe the share price of some of these major companies may still be artificially inflated. Their concerns stem from cases including that of Mokhaberat, for which the Iranian Revolutionary Guard Corps finance company Etemad-e Mobin became its largest shareholder as soon as its shares were listed on the TSE. Companies such as Etemad-e Mobin are not private companies—they are backed by the government and there are concerns that such companies are keeping share prices artificially high.

With its growing population, wealth of natural resources and well-educated workforce, the Iranian economy and the Tehran Stock Exchange in particular have the potential to become a regional powerhouse. But such potential is threatened by the concerns over transparency prompted by the ever-climbing TSE share prices.

The Majles decision to investigate is therefore a welcome one, although whether it will have the mandate to carry out a thorough investigation and follow through on any findings is another matter. After all, the financial arms of the IRGC, the Basij and other government bodies involved in the privatization programme have a strong interest in ensuring that share prices remain high.

So does Ahmadinejad’s government. The distribution of 20 percent of the shares of privatized companies to the poor, and the subsequent dividends paid to them, are used as tools to boost the regime’s popularity. They are also an important means of making lower income bracket members of the public more dependent on the government for their income, thus reducing their motivation to take part in activities to overthrow the regime.

But as with any other financial markets, sooner or later the astronomical rise of the TSE will have to peak. And when it does, the effects are likely to ricochet around the Islamic Republic’s byzantine halls of power.