Intermarket Analysis: The Impact of Global Markets on Iran's Stock Market

Definition of Intermarket Analysis and Its Importance in the Global Economy

Intermarket analysis is a framework for studying the interconnections and mutual influences between different financial markets. It demonstrates how the behavior of one market, such as equities, can be directly or indirectly affected by changes and trends in other markets, such as gold, currencies, real estate, or commodities.
In today’s global economy, financial markets no longer adhere to geographic boundaries or traditional limitations; they are highly interconnected. Recognizing these correlations helps investors gain a better understanding of market trends and make more informed decisions.
The importance of intermarket analysis in the global economy stems from the fact that economic, political, and social events in one country or region can have far reaching effects on markets worldwide. For instance, fluctuations in oil prices, as a strategic commodity, can impact currency exchange rates in oil exporting and importing countries, the stock performance of energy related companies, and even the pricing of raw materials.
Thus, intermarket analysis provides investors with the tools to comprehend these relationships and predict the chain reactions that might occur across markets.

The Interconnection of Financial Markets and Its Impact on Investor Decision Making

Financial markets are intricately connected, and these relationships cause changes in one market to quickly ripple through to others. For example, an increase in interest rates in one country can lead to capital outflows from the stock market and into bank deposits. Similarly, a rise in exchange rates can impact commodity, automotive, and real estate markets. These interdependencies compel investors to consider the effects of related markets in their analyses for better decision making.
Imagine an investor who focuses solely on the stock market, ignoring fluctuations in exchange rates or gold prices. Such an oversight can result in significant losses, as changes in parallel markets directly influence the value of stocks tied to dependent companies.
Intermarket analysis helps investors not only analyze their target market but also understand the effects of other markets, enabling them to approach trading with a more comprehensive perspective.

Fundamentals and Principles of Intermarket Analysis

Three Key Principles of Intermarket Analysis
To understand and effectively apply intermarket analysis, three fundamental principles must always be considered:

1. Interconnections Between Markets:
2. Financial markets are inherently interconnected. These relationships drive capital flows between markets based on changes in profitability, risk, or economic policies. For example, an increase in interest rates can lead to capital moving out of the stock market and into bank deposits.
3. Intermarket Analysis Alone Is Not Sufficient:
4. While intermarket analysis is a powerful tool for predicting trends, it cannot independently provide definitive buy or sell decisions. This analysis offers a broader view of market conditions, but investors should also utilize other tools, such as fundamental and technical analysis, to make informed decisions.
5. Consideration of External Factors:
6. A crucial principle of intermarket analysis is paying attention to external factors. Political events, global economic shifts, and even natural disasters can significantly impact markets. Therefore, investors must remain aware of external influences and international relations to make more informed decisions.

The Role of Internal and External Factors in Market Analysis

Financial markets are influenced by two main categories of factors: internal factors and external factors.

• Internal Factors:
• These include domestic interest rates, liquidity, local exchange rates, inflation, and domestic economic policies. For example, changes in central bank monetary policies can alter interest rates, leading to shifts in capital flows between various markets.
• External Factors:
• These encompass global commodity prices, international exchange rates, changes in global markets, and political or economic developments in other countries. For instance, a decline in global oil prices can reduce foreign exchange earnings for oil producing countries, triggering a chain reaction that impacts the stock market, exchange rates, and other sectors.

To conduct precise intermarket analysis, both internal and external factors must be evaluated simultaneously. This dual consideration helps investors understand not only local market trends but also how global developments influence domestic markets.
As a result, intermarket analysis, by examining relationships between markets and the roles of internal and external factors, enables investors to make more informed and accurate decisions. This analysis not only aids in trend prediction but also plays a crucial role in risk management and minimizing potential losses.

Global Markets and Their Impact on Iran’s Stock Market

The Impact of Oil, Gas, and Commodity Price Fluctuations on Iran’s Economy
Iran’s economy is heavily dependent on the export of oil, gas, and commodity related products. As a result, fluctuations in global prices of these goods directly impact foreign exchange earnings, the trade balance, and ultimately the stock market. Major publicly listed companies in Iran, especially those in petrochemicals, oil, gas, and basic metals, are highly influenced by global price changes.
For instance, an increase in oil prices can boost the revenues of companies operating in this sector, leading to higher stock prices in the capital market. Conversely, a decline in oil or other commodity prices can negatively affect government revenues and the earnings of listed companies. Reduced export income can lead to budget constraints and lower investments in economic infrastructure. This, in turn, indirectly impacts parallel markets such as real estate and gold.
Thus, fluctuations in oil and commodity prices affect not only the profitability of dependent companies but also the overall performance of Iran’s capital market.
The Role of Economic and Political Developments Among Trading Partners in the Capital Market
Iran’s trading partners, such as China, India, Turkey, and neighboring countries, play a significant role in shaping the state of its capital market. Changes in the economic and political relationships with these countries can affect trade flows, exports, and imports, ultimately influencing the revenues of Iranian companies.
For instance, shifts in China’s economic policies, as one of Iran’s largest oil buyers, can directly impact Iran’s oil revenues and the profitability of companies tied to oil and gas exports. Similarly, escalating or easing political tensions between Iran and regional countries can affect trade dynamics and, in turn, the stock market.
Global economic and political developments also have a significant impact on Iran’s capital market. For example, global economic crises, rising interest rates in the United States, or changes in the European Union’s trade policies can influence commodity prices, exchange rates, and investment flows in Iran.

The Impact of Economic Sanctions on Iran’s Financial Markets

Economic sanctions are one of the most significant external factors influencing Iran’s financial markets. These sanctions, by restricting access to global markets, reducing oil and other exports, and increasing the costs of foreign trade, have severely impacted Iran’s economy and stock market.
Publicly traded companies that rely on exports face reduced revenues and increased costs due to restrictions imposed by sanctions. Additionally, sanctions lead to higher exchange rates and a devaluation of the national currency, which directly negatively impacts the profitability of import dependent companies.
Moreover, sanctions increase uncertainty in the market and reduce foreign investment. This leads to a decline in demand for corporate shares and a drop in major stock market indices.

The Role of Exchange Rates in Iran’s Financial Markets

Factors Affecting Exchange Rates and Their Impact on Parallel Markets
The exchange rate is a key factor in Iran’s economy, influencing all financial markets. Changes in exchange rates can result from various factors, including liquidity, inflation, government monetary and fiscal policies, sanctions, and inflationary expectations. Any increase or decrease in exchange rates directly affects capital flows across different markets.
For example, Increase in Exchange Rates: Raises the cost of imported goods, impacting markets such as automotive and real estate through higher production and purchase costs and Decrease in Exchange Rates Can reduce the appeal of investing in parallel markets like gold and real estate, potentially diverting capital toward the stock market.
The Relationship Between Exchange Rates and Markets: Stocks, Gold, Automotive, and Real Estate
The relationship between exchange rates and the stock market is complex. In the short term, an increase in exchange rates can benefit exporting companies as their revenues, calculated in foreign currency, rise. This boosts their profitability and, in turn, their stock prices. Conversely, companies reliant on importing raw materials face higher production costs, reducing their profitability and stock value.
The gold market is heavily influenced by exchange rates. Any increase in exchange rates leads to higher domestic gold and coin prices due to the direct relationship between gold prices, the dollar rate, and global gold prices. In the automotive market, an increase in exchange rates leads to higher production and import costs, ultimately resulting in higher car prices in the market. However, the impact of exchange rates on the real estate market typically becomes evident in the long term. A rise in exchange rates can increase construction costs, which in turn drives up housing prices. Overall, the exchange rate, as a key variable in Iran’s economy, plays a decisive role in shaping financial markets. Investors must consider the impact of exchange rate fluctuations on various markets in their analyses to better manage their resources.

The Impact of Global Commodity Markets on Iran's Stock Market

In this section we talk about The Impact of Global Commodity Markets on Iran's Stock Market:

The Effect of Global Oil and Basic Metal Prices on Publicly Listed Companies

Global oil and basic metal prices play a crucial role in Iran's stock market. Due to its resource dependent economy and mining industries, Iran is highly influenced by global fluctuations in these commodities.
Oil and Related Products:
Oil is one of the primary sources of the country’s foreign exchange earnings and a significant factor influencing the government’s budget. Changes in global oil prices can directly impact oil revenues and, consequently, the government’s economic capacity to support domestic industries.
Additionally, petrochemical and refining companies listed on the stock market are directly affected by oil price fluctuations. An increase in oil prices leads to higher revenues and profit margins for these companies, while a decrease in oil prices has the opposite effect, reducing their profitability.
Basic Metals and Commodities:
Global prices of basic metals such as copper, steel, and aluminum also significantly impact related companies in Iran’s stock market. Companies that produce or export these metals experience profitability fluctuations based on global price changes.
For instance, an increase in global copper prices raises the export revenues of companies producing this metal, thereby increasing their stock value in the capital market.

The Role of the Dollar Index and International Markets in Iran's Stock Market

Dollar Index (DXY):
The Dollar Index (DXY), representing the strength of the US dollar, has a direct impact on global commodity prices. A stronger dollar typically leads to a decline in commodity prices (including oil and metals) because these commodities are priced in dollars. a stronger dollar increases the cost of these goods for other countries. As a result, falling global commodity prices can negatively affect the performance of companies exporting basic commodities in Iran’s stock market.
International Markets:
Iran’s trade relationships with key partners, such as China, India, Turkey, and Iraq, also play a crucial role in the stock market. Economic and political fluctuations in these countries, particularly in their demand for Iranian products, can influence the profitability of companies listed on Iran’s capital market.
For example, changes in China’s trade policies could significantly impact the export of basic metals from Iran.
Overall Analysis
In addition to being influenced by domestic policies and variables, Iran's stock market is heavily affected by global market developments. Investors need to closely monitor fluctuations in commodity prices and the Dollar Index, as these factors can lead to significant changes in the profitability of publicly traded companies. Combining this data with an internal analysis of Iran’s stock market provides a powerful tool for forecasting trends and making informed investment decisions.

Correlation Analysis Between Markets and Its Application in Trend Prediction

The Concept of Positive and Negative Correlation Between Markets
Correlation is a metric used to measure the degree of relationship and mutual influence between price changes in different assets or markets. This relationship can be positive, negative, or neutral:

1. Positive Correlation:
2. Indicates that two markets move in the same direction. For example, an increase in gold prices alongside a rise in the domestic exchange rate demonstrates a positive correlation between these two markets.
3. Negative Correlation:
4. Reflects an inverse relationship between two markets. For instance, an increase in bank interest rates typically leads to a decline in the overall stock market index, as investors shift their capital to bank deposits.
5. Neutral Correlation:
6. In this case, price changes in one market have no significant impact on the other. For example, an increase in the price of an agricultural product may not affect the stock market index.

Understanding these concepts enables investors to anticipate the behavior of various markets and make better investment decisions.

Analysis of Interrelationships Between Stock, Gold, Currency, and Commodity Markets

Iran's financial markets are highly interconnected, influenced both directly and indirectly by domestic and international variables. Analyzing these relationships can help investors forecast trends and adopt effective strategies.

1. Currency and Stock Markets:

An increase in the exchange rate, especially the U.S. dollar, generally boosts the profitability of export oriented companies in the stock market. This rise in profitability enhances the stock value of companies earning in dollars (such as petrochemical, steel, and mining industries).
Conversely, a higher exchange rate can increase production costs for import dependent companies, negatively impacting their stock performance.

2. Gold and Currency Markets:

The price of gold in Iran is influenced by two main factors: domestic exchange rates and the global gold (ounce) price.
Exchange rate fluctuations directly affect the gold market. For instance, when the dollar price increases, investors often shift toward the gold market to preserve the value of their assets. This typically drives gold prices higher, indicating a positive correlation between these two markets.

3. Commodity and Stock Markets:

Global commodity prices, such as oil, copper, and steel, significantly impact the performance of related companies in the stock market.
Rising commodity prices generally lead to higher profitability for export oriented companies active in the stock market.

4. Gold and Stock Markets:

In periods of rising inflation expectations or declining bank interest rates, gold becomes a more attractive safe haven investment.
This often leads to liquidity flowing out of the stock market, causing stock indices to decline.

The Application of Correlation in Trend Prediction

Correlation analysis between markets is a valuable tool for forecasting future trends. For example:
A reduction in bank interest rates is likely to shift capital from banks to the stock and gold markets.
An increase in the Dollar Index (DXY) may lower the prices of basic commodities, potentially impacting the profitability of related companies in the stock market.
By analyzing trends in interconnected markets, investors can make smarter decisions regarding when to enter or exit a market.

The Impact of Interbank Interest Rates on the Capital Market

Definition of Interbank Interest Rates and Their Role in Capital Flows
The interbank interest rate is the rate at which banks borrow funds from each other to meet their financial needs. Set by the central bank, this rate serves as one of the most important monetary policy tools, playing a significant role in controlling liquidity and directing capital flows within the economy.
When banks face liquidity shortages, they turn to the interbank market to secure funds. Lending banks provide their resources to borrowing banks at this rate.

1) Increase in Interbank Interest Rates

Higher interbank rates lead to an increase in bank deposit interest rates.
As a result, investors tend to allocate their assets to bank deposits, which offer lower risk and guaranteed returns.
This shift often results in liquidity outflows from parallel markets such as stocks, gold, and real estate.

2) Decrease in Interbank Interest Rates

Lower interbank rates reduce the appeal of bank deposits by lowering their returns.
Consequently, capital moves toward riskier markets with higher potential returns, such as the stock market.
The interbank interest rate is a key factor in the movement of capital across financial markets.

The Impact of Interest Rate Changes on the Attractiveness of Iran’s Stock Market

Interbank interest rates affect Iran’s stock market in several ways:

1. Impact on Liquidity Flows

When interbank interest rates rise, bank deposit returns increase as well.This encourages capital outflows from the stock market toward banks, reducing stock market liquidity.
Conversely, when interbank rates decrease, deposit returns diminish, prompting investors to redirect capital into the stock market. This shift directly affects trading volumes and the growth or decline of market indices.

1. Impact on Companies’ Financing Costs

Interbank interest rates influence bank lending rates.
Increased lending rates raise financing costs for companies, negatively impacting their profitability.
Reduced rates decrease financial costs, improving companies’ performance and enhancing the attractiveness of their stocks.

1. Relative Attractiveness of Assets

Interbank interest rates affect the relative appeal of various asset classes.
Low risk assets like bank deposits become more attractive to investors, causing liquidity to drain from the stock market.
Decreased rates enhance the relative appeal of the stock market compared to other investment options.

1. Impact on Stock Valuation

Interest rates play a significant role in determining the discount rate applied to companies’ future cash flows.
Increase in interest rates reduces the present value of companies’ future earnings, leading to a drop in stock prices.
Reduced rates have the opposite effect, boosting stock valuations.
Interbank interest rates, as one of the central tools of monetary policy, play a pivotal role in capital flows and the attractiveness of the stock market. Changes in these rates can drive investors to shift between different markets, influencing companies’ profitability and stock valuations. Understanding the relationship between interbank interest rates and the stock market helps investors make more informed decisions in managing their assets effectively.

The Relationship Between Liquidity Growth and Financial Market Volatility

Liquidity growth is one of the key factors driving volatility in Iran’s financial markets. High inflation in the Iranian economy, stemming from excessive liquidity growth and weak financial resource management, has made various markets—including gold, real estate, and stocks—highly sensitive to liquidity changes.
Liquidity growth typically follows a reduction in interbank interest rates or an increase in government expenditures. This growth prompts investors to seek safe havens for their capital, resulting in rising prices for assets such as gold and stocks.
On the other hand, a reduction in liquidity diminishes the attractiveness of parallel markets and redirects capital toward bank deposits.

Strategies for Designing Investment Plans Based on Intermarket Analysis

The Role of Intermarket Analysis in Identifying Entry and Exit Points in the Stock Market
Intermarket analysis helps investors determine the best times to enter or exit the stock market by examining relationships between various markets. For example:
When the exchange rate rises, stocks of companies with dollar denominated revenues become more profitable, signaling a potential entry point into the market.
Similarly, a decrease in interbank interest rates encourages liquidity to move out of banks and into the stock market. Conversely, an increase in interest rates reduces the stock market's attractiveness, shifting capital back to bank deposits.
By leveraging intermarket analysis, investors can rely on credible data instead of emotional reactions, enabling more rational decision making.
Using Key Indicators to Forecast Market Trends
Key indicators like interbank interest rates, the global dollar index, and commodity prices are essential tools for predicting market trends:
Interbank Interest Rates:A decrease often indicates increased investment in stocks and gold.
Global Gold and Oil Prices:These indicators provide direction for commodity markets and related stocks.
Market Correlations:Analyzing correlations reveals how changes in one market can influence others.
Ultimately, designing a strategy based on intermarket analysis requires a thorough understanding of relationships among markets and influential variables. Investors should regularly analyze domestic and international indicators to identify the best investment paths.

Challenges of Intermarket Analysis in Iran

Limited Access to Global Data and Its Impact on Analysis
One of the major challenges of intermarket analysis in Iran is limited access to accurate and up to date global data. Economic sanctions and infrastructural restrictions hinder access to international financial information and analytical tools.
This situation deprives Iranian analysts of critical data such as global interest rates, the dollar index, commodity prices, and international market trends. These limitations often result in incomplete analyses, forcing investment decisions based on outdated or insufficient data.
For example, the lack of precise information on fluctuations in global oil and basic metal markets can lead to errors in forecasting domestic market trends, as these markets are highly dependent on global prices.
Structural Economic Challenges in Iran and Their Impact on Intermarket Analysis
Iran's economy faces significant structural challenges that complicate intermarket analysis. Issues such as high inflation rates, uneven liquidity growth, heavy reliance on oil revenues, and economic policy instability create an uncertain environment for analysts.
For instance, the exchange rate in Iran is heavily influenced by domestic policies rather than natural market supply and demand dynamics, making it difficult to predict its impact on other markets such as gold and real estate.
Non economic factors like political decisions or external sanctions also create unpredictability in the intermarket environment, reducing the reliability of analyses for investors.

The Importance of Intermarket Analysis in the Era of Economic Globalization

The Role of Global Connections in Financial Market Convergence
Economic globalization has increasingly interconnected financial markets, amplifying their mutual influence. Changes in a major global market, such as currency or oil, can rapidly transmit their effects to other markets.
In this context, intermarket analysis becomes highly significant as a tool to help investors anticipate the impact of external factors on domestic markets. For instance, fluctuations in oil prices due to geopolitical or economic developments can directly affect Iran’s economy and subsequently its domestic financial markets. Therefore, analyzing global connections and focusing on international indicators is essential for better understanding market convergence and predicting future trends.
The Necessity of Considering Parallel Markets in Stock Market Analysis
One of the key aspects of intermarket analysis is the study of parallel markets and their influence on the stock market. In Iran, parallel markets such as gold, real estate, and currency have both direct and indirect impacts on the stock market.
For example, an increase in the domestic exchange rate typically raises the value of dollar based assets held by publicly traded companies, boosting the attractiveness of their stocks.
Analysts should recognize that changes in parallel markets can provide valuable signals for identifying stock market trends. In the era of globalization, ignoring these markets is akin to overlooking critical components of a puzzle, leading to incomplete analyses and flawed decisions.