The market has polarised. Financial stocks have trebled in price over the past year, ostensibly driving much of the growth. Industrial shares have either fallen or reached a plateau since the February Majlis (parliamentary) elections. This is attributed in part to the anti-privatisation stance of many members of the new Majlis and also to the specific attacks they have made on some foreign companies and contracts.

The outperformance of financial stocks has mainly been caused by further movement towards the privatisation of government-owned banks, which will complement the creation of some private sector banks over the past few years. Although the general trend in government now appears opposed to privatisation, constitutional obstacles to it have been overcome. The privatisation of banks and insurance companies is expected to progress more slowly than had been planned, but is now looking more likely than during the summer.

High oil prices have offered investors short-term comfort. Excess oil revenues are put into the Oil Stabilisation Fund, which is commonly, if improperly, raided for capital spending on projects - creating work in the oil industries and construction sectors.

The big caps have registered the strongest performance, with the top 50 index growing by 62 per cent over the past year. However, not all have done so well, with shares in blue-chip Iran Khodro, the largest manufacturing company in the Middle East, staging a retreat in recent months.

The slump in industrial shares has been accentuated during the run-up to the end of the financial year in late September, traditionally a time when many local firms sell shares to put their books in the black.

Institutional investors still dominate the market, but an increasing number of private individuals are buying shares - a trend that will be encouraged by planned legislation to modernise the TSE. These new investors are eager to benefit from the rapid growth in the local economy over the past few years, but remain concerned that international events and government policy will unhinge the market.

'The TSE has taken a bit of a blow because of international worries and has also been affected by the parliamentary elections,' says Behzad Farsian, who owns stock in several industrial companies, including Khodro. 'I expect it to be like this for another year or so, until the presidential elections are behind us. But still, if you look at the past two years, shares are trading at much higher values.'

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