Investigations into the flow of money in and out of the Iranian stock market show that over the past 50 days, more than 300 trillion rials (approximately $6 billion) have been withdrawn from this market since the historic fall of the Tehran Stock Exchange. During these 50 days, the stock market has experienced a continuous downward spiral, and the number of days that the index has been positive is barely in the single digits.
Market players and many managers of private company attributed the repeated decline in the index to lack of knowledge until the government’s decision to increase the price of gas for industrial usage was announced. They only found out about the underlying reasons for the serial declines in the stock market when the letter attributed to Vice President Mohammad Mokhber was sent to companies, revealing the government’s secret decision regarding the increase in price of gas for industries and petrochemicals.
Since that day, the outflow of money from the stock market has continued unabated. Retail investors (small shareholders who are independently active in the stock market) are trying to withdraw their remaining capital from this market to avoid further losses.
The emergence of new rent-seekers
The term “rentier state” is used for governments similar to the regime in Iran; a government that has independent financial resources other than society’s taxes and can implement government policies and demands with greater independence.
Over the past four decades, rentier governments in Iran have created rent-seeking groups that have widened the class divide and resulted in the emergence of a group called “white-collar ” in Iran’s economy, which formed a new class and rooted itself in all economic sectors.
This emerging group is either close to centers of power or behind the scenes of corrupt economic movements and creates economic rent directly for its subordinates.
The secret decision the government made on May 7 to increase the price of gas for industries is an obvious example of rent and corruption that has destroyed the capital of many small shareholders.
A similar incident occurred on August 21, 2020, when the Tehran Stock Exchange index dropped by 51,000 points, destroying the capital of many small shareholders. This decline occurred with the exit of government-affiliated shareholder entities from the market, and it later became clear that the government’s advertising campaign to encourage people to invest in the stock market with the aim of collecting cash to cover the budget deficit.
Behind the scenes of every economic decision that disrupts the markets, a group of emerging “white-collar ” rent-seekers is always forming, just like what happened this year and the Black Monday that hit the Tehran Stock Exchange.
Where does the hot money go?
Examination of the inflow and outflow of money from the stock market over the past 50 days shows that $6 billion of hot money has been withdrawn from the market, which can cause turbulence in any market it enters.
Although the dollar has been on a downward trend and fluctuating between 480 to 500 thousand rials in the past month, analysts believe that this fluctuation will be temporary, and the market awaits a political news or economic decision from the government to quickly redirect the flow of money in that direction.
In addition to the 300 trillion rials withdrawn from the stock market, money printing continues unabated. According to statistics from the Central Bank, liquidity grew by 3.9 percent in the first three months of this year.
The latest statistics on liquidity volume announced in May was 64.680 trillion rials (approximately $129.360 billion). With 1.390 trillion rials (approximately $2.780 billion) in facilities paid in June, according to Central Bank statistics, it can be expected that liquidity in Iran reached over 66 trillion rials (approximately $132 billion) by the end of June.
Taking into account the outflow of money from the stock market and the growth of liquidity in recent months, it seems that hot money is heating up for movement towards non-productive parts of the Iranian economy.
This money, which the “white-collar” people will manage, can move towards the gold and coin market, real estate, and ultimately affect goods, services, and people’s lives, while the government, as a rentier state, holds their affairs in hand while they pay taxes. This is a practical and prominent example of a rentier state’s administration.
