Bourse, like a mirror, reflects the performance of the capital market through its indices.

Tehran Stock Exchange has the capacity and potential to undergo a boom and become one of the world’s most flourishing bourses.
But for good enough reasons, market analysts say they are unable to draw a clear perspective on the future of the bourse.
Secretary General of Tehran Stock Exchange (TSE) Ali Salehabadi says bourse activities are often marred by marginal and unrelated incidents. Otherwise, he says, the stock market has substantial growth potentials.
“The only way out of the crises facing the stock market is to improve the macroeconomic situation of the country; I also think certain political and economic decisions are responsible for the prevailing recession (in the market).“
The top stock market official said that once the nuclear issue is resolved, the market will be back to normal.
Salehabadi believes the ratification of the Capital Market Law would launch Iran’s capital market into a major leap forward to prosperity.
He has described the Capital Market Law as a catalyst for stock market growth, and called for more attention to the bourse from the legal and scientific aspects to help shareholders make logical investment.
The Capital Market Law will work to improve the investment market from qualitative and quantitative aspects through enhanced supervision, more flexibility of market planners and diversity in financial tools.
“The stock market should be viewed as a means for public savings,“ he said.
Salehabadi reflects the mainstream view that information dissemination is a major mechanism for expanding the stock market. He has also supported establishment of provincial bourses, which he says, would help people become acquainted with capital market and shares.
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Global Scenario
In the contemporary global scenario, a large part of the responsibility of economic development has been shifted to corporate sector from state agencies. The entire structure and growth of the corporate sector depends on a transparent and prudent financial system. Incorrect judgment regarding the financial patterns in corporate sector may be a cause of heavy distortion in the society through volatilities in the stock markets, employment opportunities, distribution of income, and demand-supply gap. In the present economic structures, overall economic growth depends on the performance of the corporate sector, while the financial resources of the latter are determined by the performance, gravity and strength of the financial markets in a country.
As a leading role is envisaged for the private sector, financial policies have to be geared towards capital market development, besides the institutionalization of an effective regulatory framework. Capital market is a sub-set of financial markets, which provides a linkage between the users and suppliers of the funds for long-term investment. A capital market mainly consists of stock (equity) and bonds markets.
A stock exchange is a place to regulate and perform the activities of stock (equity) market. It is considered as a “barometer“ of the economy, because of its immediate and visible reaction on the news and transactions of economic importance.
Capital market and monetary policy are closely interrelated as they are determined jointly by the supply of money, interest rates and liquidity position. One cannot ignore the monetary side effects in survey of capital market behavior and forecasting. The linkage between the macroeconomic targets and financial and material growth in the different sectors of stock exchange is indispensable for balanced economic growth.
For more than a decade stock markets have boomed in just about every country. Encouraging and sustaining a vital capital market does more for the national economy than simply bring in new capital.
While the importance of the financial sector has long been recognized, the contribution of the stock exchange has been less obvious in some countries.
Both stimulate the accumulation of capital and contribute to improvements in productivity.
Banks and stock markets have a complementary role in a developing economy. For example, both sectors help fund the development of private enterprise.
The importance of a healthy and vibrant national stock market is underlined by numerous studies showing that a developed banking system and a robust stock exchange not only promote economic growth, but predict it.
A government that seeks to attract international equity capital is, knowingly or not, committing itself to sounder, more agile economic management.
The capital market may affect economic activity through the creation of liquidity. Many profitable investments require a long-term commitment of capital, but investors are often reluctant to relinquish control of their savings for long periods.
Liquid equity markets make investment less risky--and more attractive--because they allow savers to acquire an asset and to sell it quickly and cheaply if they need access to their savings.
By facilitating longer-term, more profitable investments, liquidity markets improve the allocation of capital and enhance prospects for long-term economic growth. Further, by making investment less risky and more profitable, stock market liquidity, for example, can also lead to higher investments.

Banks and stock markets have a complementary role in a developing economy.

Trust Factor
Heydar Mostakhdemin Hosseini, head of TSE’s board of directors, told ISNA recently that once the economy becomes more stable and production activities pick up, the situation in the stock market will improve.
“To this end, members of the board of directors have a big responsibility in managing and guiding the market appropriately and to the benefit of all sides.“
Mostakhdemin Hosseini said the legislative branch can do its share by giving the board of directors’ comprehensive and greater authority to push for expansion of the capital market within economic development programs.
The fact of the matter is that monetary and financial policy makers are well aware of the challenges facing the market and the priorities are clear. “The focus should now be shifted towards finding remedial and improvement tactics.“

Public Awareness
Deputy Head of Tehran Stock Exchange for supervision and operation affairs Hadi Bidokhti said one such step would be promoting public awareness on how to play their fair share as a stakeholder by using advantages offered by the capital market. “People, as players, should know the rules of the game.“
Bourse, like a mirror, reflects the performance of the capital market through its indices. Fluctuations in the stock market are in fact a reflection of how political decisions impact a country’s economic undertakings.
An economic expert, Abbas Hashi, said current market indicators cannot provide substantial grounds for establishing analytical comments about the present or future status of the market. “All we can do at this point would be to wait for the Capital Market Law to go into effect and then assess the consequences.“
Stressing the importance of winning public trust, he said more than 85 percent of the market is controlled by semi-state and state institutions. “If the objective is to encourage the people to invest their money into the market, the government would have to win their trust, which could materialize by achieving economic growth.“
Hashi says attaining economic growth is tied to transparency in state economic policies and solutions, further endorsing privatization and reducing the administrative size. Otherwise, he said, in a state-controlled economy as the government is the sole stakeholder, the investment market would lose its sense altogether.

Head of the Central Bank of Iran Ebrahim Sheibani recently submitted a bill on reducing bank rates to parliament for further review. However, the bill was turned down by the majority of lawmakers and was also strongly opposed to by the powerful Guardian Council. Since then he has reportedly announced his plans to resign as the head of Central Bank by the end of the spring season.
Last autumn, there were also similar rumors about his imminent resignation but proved false, according to Donyaye Eqtesadi.
Sheibani is a university graduate from the United States and has a proven track record in economic positions and activities. For the same reason he was a perfect advisor for the former Khatami government in the absence of the late Nourbakhsh. And despite huge differences in economic policies of the new government, President Mahmoud Ahmadinejad decided to retain Sheibani as head of Central Bank.
Without a doubt, the Central Bank has for decades managed to employ some of the most talented Iranian economists with high academic credentials from top universities and institutions across the globe. The Central Bank has continued to perform well as a symbol of economic expertise Ð far better than many other state-run organizations and ministries. In addition, the process of selecting its top chief has always been based on expertise and not political grounds. Moreover, academic background and professional capabilities have always been given priority in selection of the candidate for the top Central Bank post.
While the president selects his cabinet and parliament approves the ministers, however, when choosing the head of the Central Bank, the president’s nominee has to be approved by the general assembly of the Central Bank and not necessarily the Majlis. Such a practice plus the professional background of the Central Bank have forced chief executives to consider the expertise of the prospective candidates before nominating them for the post. This is because most of the technocrats in the Central Bank also have a strong background, and therefore will not approve of someone without impressive credentials. So in practice, an improper choice will hamper efficient functioning of the Central Bank.
It should be noted that even in the developed nations the central banks always appoint professionals to the top post so that monetary policies are implemented efficiently. In such countries the economic forecasts of the central banks are taken far more seriously than predictions of government officials and politicians.
Sheibani’s replacement might seem rather illogical, especially when taking into account developments in the Central Bank. However, if the Central Bank chief for some reasons has made up his mind to resign, then those in charge of nominating his successor should ensure that the selection process is not politically motivated and the candidate is indeed a technocrat.
The main point is that the Central Bank chief requires freedom and independence to take the initiative in economic and financial issues in order to be effective and efficient at the macro economic levels.