Stock Market Outlook in 1402: How Long Will Inflationary Growth Continue?
Stock Market Outlook in 1402: How Long Will Inflationary Growth Continue? According to Iran Gate, the Tehran Stock Exchange’s main index has hit a historic record of two million points even before the Nowruz holidays have ended, and the stock trading market hasn’t heated up yet. This record, which was once repeated in the summer of 2020, has been set this time in a completely different manner and hasn’t been able to generate the excitement among the large family of Iranian shareholders as it did three years ago in August.
Most analysts believe that the Tehran Stock Exchange is currently experiencing growth due to inflation exceeding 50 percent. This growth was expected to have occurred much earlier, turning the stock exchange boards green. However, it seems that the Tehran Stock Exchange has recently managed to overcome the obstacles in its path and is now on a growth trajectory.
What is Inflationary Growth?
The stock market is naturally a place for buying and selling shares of companies producing various products or services in different sectors. Therefore, the profit that shareholders and market participants earn is directly related to the income of the companies present in the stock market.
In other words, the more a company’s income grows, the more its stock value will follow an upward trend. In an economy like Iran’s, which has been grappling with heavy chronic inflation for the past half-century, one of the factors for company income growth is inflationary surges that occur at different times, as these companies can sell their products or services at higher prices than before during inflationary surges.
50 Percent Inflation Benefits Stock Market Participants
Given the explanations provided, it can be said that increasing inflation in any country can lead to a rise in stock prices. Although, in very rare cases, this does not happen, overall, stock market participants always benefit from inflation.
However, the point is that not all stock market participants benefit equally from this situation because shareholders are categorized into different groups, with traders and long-term investors being among the most important. When inflation grows to this extent and at such a high speed, naturally, the stock market’s rate of return also suddenly increases. However, a group of stock market participants engaged in speculation sees a very hot and thriving market in front of them in these conditions.
Although those who view stocks as a long-term investment also benefit from this situation, overall, it can be said that this benefit is more about maintaining the value of their assets rather than a net profit. Therefore, it is said that speculators who are constantly trading in the market gain the most from inflationary surges in the country.
It should be noted, however, that any speculative activity in Iran’s rent-seeking economy is inherently profitable. This applies to the currency, gold, housing, and stock markets. The point is that such activities undermine the economy’s foundation and eliminate the groundwork for stable and constructive investment. Unfortunately, this type of activity is one of the key features of economies facing chronic inflation, and until a solution is found, it will be inevitable.
Which Stocks Have a Better Future?
Considering the points mentioned and the state of global markets, it can be said that the Tehran Stock Exchange is still poised for growth. However, risks such as sudden regulatory changes, price controls, trading restrictions, political developments, and the status of Iran’s nuclear dossier threaten the market. Nonetheless, it seems that commodity-based and even currency-based stocks have much better days ahead.
On the other hand, some experts believe that contrary to the government’s claim of stabilizing the official exchange rate at 28,500 tomans, it is forced to reduce the gap between the NIMA exchange rate and the free market. If this happens, naturally, the situation for export-oriented sectors in the market will improve.
Although banks and insurance companies are unlikely to experience significant jumps due to the complete deadlock in nuclear negotiations, considering the mentioned points, it is likely that all stock groups in the Tehran Stock Exchange will face greener days.
This outlook is predicted for shares in sectors such as petrochemical, steel, cement, food, and mining. However, in an economy like Iran’s, everything happens in the moment, and a government decision or a bomb explosion in neighboring countries could completely change the course of the Tehran Stock Exchange.
Diagnosing the Cancer of Iran’s Economy: Why is Inflation in Iran Uncontrollable? Part Four
Diagnosing the Cancer of Iran’s Economy: Why is Inflation in Iran Uncontrollable? Part Three
Diagnosing the Cancer of Iran’s Economy: Why is Inflation in Iran Uncontrollable? Part Two