Small investors are exiting Tehran’s stock exchange after 18 months of losses, with the hope of making alternative investments and recoup some of their capital.

In the Iranian month of Day which ended on January 20, sixty trillion rials was taken out of the stock market, local media reported. Based on Tehran’s free market exchange rate on January 24, this equals $240 million, a small sum compared with the world’s large stock markets, but for Iran the amount in local currency and considering the size of the economy it is an alarming development.

The news comes as Iran’s high annual inflation rate hovering above 40 percent showed no sign of declining, and the value of the national currency remained near all-time lows against the US dollar, with 280,000 rials buying just one greenback.

In 1978, just before the overthrow of the pro-West monarchy, 70 rials bought one US dollar – a 4000-fold decline in 44 years.

The stock exchange index declined by a further five percent in the same 30-day period, prompting the exodus of capital from the market. Trading has been very low at the stock exchange with less than $100 million exchanging hands in one month. This is a sign of growing concern among small investors who have badly lost money in the market since mid-2020.

In early 2020 the stock index was less than 500,000 points until the government offered to sell its assets through the Tehran stock exchange which moved the index higher. Then the government began encouraging small investors to commit capital to the market. Top officials spoke through state-controlled media of the supposed benefits of buying stocks and securities. Amid the declining value of the rial and rising stock prices, many small investors concluded that investing in the stock market is a good way to protect their capital from devaluation.

The index rose to 2 million points by mid-2020 in an unbelievable bull market amid US sanctions and a deep economic crisis. Many people began investing when the market was already too high and then it crumbled to 1.2 million points, or a 40-percent decline, wiping out the savings of small investors.

With 18 months of declines or sideways movements, there is no hope for a quick recovery. The government keeps promising to fix the stock market value, as though it is a savings account that a bank must protect and is divorced from the real economy, which is in deep trouble.

There is little available private equity in the market as people have become distrustful of banks and the stock market, both of which the government can manipulate or mismanage. Reports in the past have said that Iranians hold more than $30 billion in cash at home, not trusting the rial, which has declined eightfold since late 2017.

With talks taking place with the United States over Iran’s nuclear program, there is hope that an agreement will end sanctions imposed by the former US administration in 2018. If that happens, it will help the rial to an extent, but the issue is that the government and its banks and companies are mired in debt and inflation. It would take years of high economic growth to save the economy, but in a centrally controlled system without foreign investments, and with cronyism and mismanagement that is a long shot.