New supportive umbrella

Last week, two pieces of news drew the attention of market experts in their analysis of the outlook for capital markets. The first news was about the ratifications of the Money and Credit Council meeting. The act regarding Bank interest rates and bonds was not a new issue, but the most important decision made by the Money and Credit Council meeting on Tuesday was the Central Bank's cut on reserve requirement ratio (cash reserve ratio) for banks. According to this act, the legal deposit for all types of deposits in commercial banks and credit institutions (governmental and non-governmental) is determined equally with % 5.13. "Reserve requirement ratio increases lending power of banks, causing increase in banks' earnings from these facilities; and while 10 banks operate and trade in Tehran stock exchange, an increase in the earnings of these banks has a positive effect on the stock exchange", said Rouhollah Hosseini Moghadam, Vice President of Research and Development in Stock Exchange Company. The other news was the implementation of the scheme to insure shares starting last Saturday. The worrisome trend of the stock index during past 6 months led to reconsideration of all decisions with regard to strengthening the market and in doing so, it caused adopting various decisions and policies in this scope. However, the market trend is still negative.
Decision-making and policy-making supports such as reducing the interest rate of bank deposits, decisions to reduce the feed rate of petrochemical gases, decisions to privatize shares, and the like, were among the authorities' decisions in their first supportive sequence which was not fruitful. In the second sequence, policies moved towards market reforms and included policies such as creating a market management entity, blocked market, preventing from micro supplies of privatization, and so on, which have not shown their effects on the market yet. As it has been demonstrated in the news regarding the last supportive policy, issuing the subordinate bonds was on the stock market's agenda. Accordingly, since Saturday June 28, 2014 these bonds are issued with an annual minimum efficiency of 20 percent via a daily calculation for shares of 29 companies, and this turnover is guaranteed by the issuer of bonds. Experts assess this policy as due to protect the rights of shareholders and believe that it is equal to stock insurance. Sale price of subordinate bonds would be in a way that the annual turnover for the shareholders who buy the shares is at least 20 percent; it is obvious that this amount would be the minimum guaranteed turnover of the shares and if there is any surplus turnover, it will be allocated to the investors.
In this regard, Hosseini Moghadam mentioned the good experience form 2010-11 and said: "There are so many reasons why subordinate bonds are important for the market". He continued; "Issuing subordinate bonds means that the investors ensure gaining minimum expected turnover from their investment instead of a small amount of payment to buy subordinate bonds, and this has a positive effect on the capital market". Pointing out that insuring the shares provides reassurance to the investors, Hosseini Moghadam declared that while there is uncertainty in the market; trust will lead to greater care and attention by investors who hold subordinate bonds.
Emphasizing the successful experience of issuing subordinate bonds in the capital market, he expresses while increasing security, these bonds increase the attention of investors to the capital market and prevent risk-averse investors from leaving the market. "Market had a relatively stable process the day before. However, one can see the dominance of stagnation in the market. Some people are waiting for the results of negotiations and believe that market boom depends on these results. But others believe that alterations in the conditions of the business entities will lead to a boom in the capital market, and some others assert that there is a need to strengthen the government policies in order to support the market.", he went on to say.
However, an expert on capital market believes that low volume of transactions and lack of liquidity for corporate investors are the results of stock index fall and said that corporate investors are interested to buy the shares at the current prices. At the same time, sellers are not willing to sell and it seems this condition would be continued until the status of the nuclear program negotiations is made clear. Moghadasian noted liquidity shortage as the current problem of the market, and pointing out to the six-fold reduce in the P/E of Tehran Stock Exchange declared: "The amount of trade in the Stock Exchange demonstrates dominance of waiting mode in the capital market and market participants are waiting for the upcoming events". Comparing the capital market with other markets, Iman Moghadasian asserted that government's anti-inflation policies caused stagnation in most of the markets, but the impact of these policies on the capital market has led to the market fall in addition to the deals downturn.
He continued that currently the capital market is tied with three categories. Therefore, the capital market is waiting for the result of nuclear negotiations, global economy and reform of the domestic prices and industry pricing according to the increase in energy carriers, and while these issues are not yet resolved, one cannot expect any rise in the share prices.
This capital market expert stressed that government increases the petrochemical feed rate; but on the other hand pushes these industries to sell their products at the price determined by the government. This factor put the industries into crisis, and since the share of these industries in the stock is large, it causes a drop in the stock index. Responding to the question on "how do you assess the stock market conditions in the short and medium terms approximately until September?" he replied: "The fact is that because of its multiple capacities, the state's stock market has a very bright future ahead"; but in the meantime, some unexpected events and decisions lead to unnatural rollback of the prices and stock index.
"Thus, if the two conditions of resolving the existing ambiguities and non-occurrence of sudden events are fulfilled", Moghadasian added "it is possible to see stock market boom and the upward trend of the index and prices; but do not expect this process to be along with accelerations and successive mutations."
Donyaye Eghtesad Newspaper