How presidential race causes upward trend in Iran’s stock market?
By Farhad Daneshvar
Ahead of Iran’s May 19 presidential election the country’s
economy is still struggling with deep recession but the stock
market is on a bullish run.
Tehran Stock Exchange (TSE) Main Index advanced for the eighth
consecutive week to close at 80127.1 this week, setting a new high
for 2017.
This once again proves that stock markets sometimes turn to a
distorting mirror of the real economy, but the current upward trend
at Iran’s largest equity market appears to be impacted by political
reasons rather than economic realities.
The positive trend of the TSE apparently runs a risk of a bubble
which sooner or later will burst and the true reason behind the
growing trend seems to be the fact that the market looks too much
at the political developments, in particular the upcoming
election.
Having a look at the TSE records, one can find out that the main
index normally grows prior to the presidential elections in the
country, even if the economy is ailing.
While the incumbent President Hassan Rouhani is seeking re-election
in the upcoming polls, his fate may rest on the economic
expectations of ordinary people.
Voters’ economic expectations may doom his re-election bid as the
conservative and hardline opponents of the moderate Rouhani are
drawing a black picture of the country’s economic situation
suggesting that his landmark nuclear deal inked with the world
powers in 2015 has failed to improve Iranians’ living
conditions.
On the other hand rumors have swept the TSE building that a group
of Rouhani’s supporters have joined efforts to help the TSE index
to grow in order to signal a growth in the country’s economic
situation.
One way to manipulate the market is artificially inflating the
price of securities but how is this realized at the TSE?
The Capital Market Development was created under former President
Mahmoud Ahmadinejad’s term in a bid to increase market liquidity by
investing and offering market for stocks in the Tehran Stock
Exchange.
According to the initial plan, the fund was supposed to be
independent of the Securities and Exchange Organization (SEO), the
regulator of the capital market in the country. However, the fund
gradually became under the SEO control and it is now accused of
market manipulation.
Some traders at the TSE criticize the fund’s performance saying
that its investments are based on orders from the SEO in order to
protect the main index. When the main index starts to fall, the SEO
through the fund manipulates the market and pushes the index
upward.
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