Meet Iran, World's Hottest Stock Market

♠ Posted by Emmanuel in , at 5/17/2020 09:26:00 PM
Infidel, witness the power of the Tehran Stock Exchange.
Your first reaction may be, "They have a stock market in Iran"? Fret not, dear readers, they do have one. What's more, it's been on fire despite the ongoing US embargo that's brought its economy to a near-standstill in terms of international trade. Speaking of which, one of the things Iran still trades--albeit in reduced amounts--is oil. With oil prices near multi-decade lows at the moment due to the sheer lack of demand for it as the world has come to a halt, you would be right to expect that this newly-discovered Iranian stock market is faring very poorly at the moment.

And that's where you are precisely wrong. As it turns out, the stock market is one of the few domestic money-making opportunities left in Iran. They cannot trade internationally, and that which they can trade--oil--is worth #$%^. Sounds like a boom scenario for the local bourse, no?
The Tehran Stock Exchange has seen gains of 225% in the last year, with sharp increases even as the country struggled with one of the first serious coronavirus outbreaks outside of China. Encouraged by a government eager to privatize state-owned firms, average people now have access to the market and can trade shares, earning returns they’d never see in a savings account or a certificate of deposit.

But these rapid gains increasingly have analysts and experts worried about a growing stock market bubble, one that could be particularly dire and wipe away the earnings of the average people flooding into the market.

“We have witnessed a very strange incident,” said Hossein Tousi, a member of Iran’s Chamber of Commerce , speaking to 90eghtesadi.com, an Iranian economic review website. “As all markets have fallen, crude prices have fallen sharply, but in our market, the situation is upside-down. It is clear that it is a bubble.”
To be sure, you would still be worse off in US dollar terms since the rial has depreciated mightily since Trump's reintroduction of sanctions. It's worth less than a fourth of what it was pre-Trump. Decades of isolation have made Iranian leadership characterize foreigners' skepticism of outsized stock market gains as (surprise!) a Western plot to destabilize Iran. This is not a bubble, they say:
The exchange lists a half-million active traders out of some 12 million people who registered to buy and sell stocks. “An everyday 5% percent is very sexy,” said Abdollah Rahmani, a retired bank employee who trades stocks. ”What other market makes such a profit?”

Even President Hassan Rouhani, beleaguered since U.S. President Donald Trump unilaterally withdrew America from his 2015 nuclear deal with world powers, has pointed to the market as a rare bright spot for the country. Iran’s rial currency has fallen to 160,000 to 1 against the U.S. dollar, as opposed to the 35,000 to $1 in 2015.

“As Iran’s bourse has developed, (our enemies) become nervous and asked why the market is developing while markets in the world are in chaos,” Rouhani said at a Cabinet meeting last month. This rise “is because of efforts by all companies, business people and fortunately offering shares of big companies to the stock market.”
This stock mania traces its roots to nationalization post-1979 revolution and then privatization once more a few years thereafter as public management of the commanding heights was not found to be conducive to economic development:
The stock market rise in part takes root in how Iran’s economy has changed in the decades since its 1979 Islamic Revolution. Immediately after taking power, Iran’s Shiite theocracy seized large private industries, putting them in large trusts, or bonyads. The bloody 1980s war with Iraq saw Iran further nationalize its economy.

In the 1990s, Iran began a privatization effort. The stock market became one way to accomplish this, with former hard-line populist President Mahmoud Ahmadinejad giving out so-called “Justice Shares” in firms to the poor. Some 50 million Iranians now hold those shares.
When day trading is the only economic activity left in a country, and that country's stock market is the only one up significantly in the whole wide world, you are right to be skeptical. Economic theory holds that shares rise in the expectation that corporate earnings will increase rather than decrease, and Iran remains in the direst of straits. Maybe the next question we should have is, "Do they have short-selling in Iran"?