The overall index of Tehran Stock Exchange has risen dramatically in recent weeks, but alongside this increase, three warning signs have clearly emerged in the market. The question arises whether the market has reached its peak and is on the verge of a decline?
Unusual Growth and P/E Ratio
The overall index of Tehran Stock Exchange has rapidly risen after the war while the country's economy is in dire straits. In less than four months, this index has jumped from 4 million units to nearly 7 million and 500 thousand units. Some symbols have yielded over 200 percent during this period, and the overall market yield has also exceeded 50 percent. Compared to the 37 percent yield of the dollar and 34 percent of gold, the yield of Tehran Stock Exchange is clearly higher.
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The P/E ratio, which indicates the market's assessment of companies' profits, has currently reached 9.1. This is while the historical average of this ratio is about 7.3 units. This rapid increase in the P/E ratio over 20 days indicates that prices have risen faster than the actual profits of companies, which could suggest the presence of a price bubble.
Entry of Real Money and Market Analysis
Since the market reopened on May 19, the net entry of real money has constituted an average of 3.7 percent of daily transactions. This volume of retail investor entry is unprecedented compared to previous periods. However, analysts believe that the entry of real money in the final stages of a bullish market is usually a sign of market excitement.
Additionally, institutional and legal investors are currently selling their shares, which may indicate a distribution pattern. This pattern typically appears in the final stages of a rise and means that large shareholders are selling shares to newer buyers while the market is still bullish.
In recent days, the overall index and the equal-weighted index have moved simultaneously, but in the 10-day period from September 7 to 22, the overall index has grown by 14 percent while the equal-weighted index has only grown by 10 percent. This type of growth may indicate a concentration of investment in a few large stocks, which typically emerges in the final stages of a strong rise.
Ultimately, some analysts believe that Tehran Stock Exchange still has growth potential, especially considering future price forecasts and currency exchange rates. However, at the same time, the increase in P/E and the entry of real money could mean increased risk in the market. Under current conditions, one can talk about the possibility of a correction, but a definite decline remains uncertain, and the future path of the stock market depends on various factors such as financial reports, currency rate changes, and political risks.
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