Tehran's foreign policy under fire

Analysts say the country's foreign policy needs to be reviewed in a bid to improve Iran's economic situation.

Traders at work at the Tehran Stock Exchange, which dropped to below the 9,000 mark for the first time in five years last week.

TEHRAN // Iran's insulated position in the world community is helping drive its stock market down, with analysts saying the country's foreign policy needs to be reviewed in a bid to improve its economic situation. Worried investors, many of them small shareholders, packed the main hall of the Tehran Stock Exchange this week, nervously watching the value of their equities fall as their stock index (TEPIX) plunged.

The falling value of shares is giving rise to growing concerns among Iran's investors about the impact of the global financial meltdown on the country's insulated economy and capital market. Equity market analysts said the TEPIX plunge came much later than those of other stock exchanges as a result of Iran's comparative isolation from international markets. Foreign investment in the exchange is scarce, and it does not invest in foreign stock markets and no foreign companies are listed on the TSE.

Some market analysts said by adopting a foreign policy aimed at eliminating tensions with the international community, the government can help improve the economic situation and boost the stock market. "Tensions caused by the foreign policy of the government impose huge costs on companies and cause feelings of insecurity in investors," Behzad Rouhi, a board member of Aria Stock Market Brokerage, was quoted by the Sarmayeh economic newspaper as saying. "President [Mahmoud] Ahmadinejad and his economic team are trying to convince the nation that our economy can't be hurt hugely by the global meltdown because of its independence from the international markets and that the economy will be improving soon," said Reza, a stockmarket broker who requested that only his first name be published. "But such reassurances are not going to dissuade scared investors from cashing their equities as fast as they can. They are hearing about the trouble everywhere else in the world and no amount of reassurance can convince them the same won't happen here too," he said. The TSE index dropped to below the 9000 mark for the first time in five years on Saturday and the trend continued during the week. The TSE capitalisation loss in the past three months is estimated at more than US$15 billion (Dh55bn), despite considerable gains this year that placed it among the world's top three fastest growing equity markets. The TSE value is now about $50bn, down from $67bn in July. The first shock plunge occurred at the end of October when the sharp fall in equities in metal-producing companies caused a $3bn loss on the market in just one day. Bourse officials said the still continuing drop in metal producers' equity values is a result of decreased demand for their products in the international markets. The share values of many other companies, including shipping and telecommunications companies and private banks, have been declining. The shortage of cash and the plunging prices of metals in international markets are cited by Iranian bourse authorities as the main reasons for the falling indices. The managing director of the TSE has advised shareholders to be patient, but investors are not so confident. "The future of the global economy doesn't look good at all. We can't live in isolation and our economy too can be seriously affected. If things go worse there should be money on hand," said Hamed Taghavi, 46, a car parts dealer and investor in real estate and the stock market who said he was going to sell his Telecommunications Company shares as fast as he can. "Cash is rare in all capital markets these days. The real estate market, for example, has been stagnant for some time now and it is very hard to sell property." Mr Taghavi said he invested heavily in the TSE this summer when it was booming. "It didn't last very long," he said. "I am seriously thinking of getting out of the market with as much cash as I can." [e-mail]