If they do it right, Iran might become the United Arab Emirates on steroids. New, futuristic towers in cities friendly to frolicking Westerners who kiss in public and wear bikinis to the beach.
Last month, President Barack Obama managed to get an historic deal signed with Iran regarding its nuclear energy program. And investors think this will lead to the gradual opening of Iran's securities market, much like has happened over the last several decades in the U.A.E. Both U.A.E. and tiny Qatar were once nomadic desert nations with nothing but oil. Sure, if the only thing you're going to get handed to you in life is an oil field it's nothing to cry about. But since then, both of those countries have become global travel destinations, world trade hubs and a paradise of modern architectural design. Moreover, both were included in the
Iran is not currently in any investing indices. But since Obama lifted sanctions on Iran in July, investors think that will change. Iran is bound to become a new frontier market, at least on par with Central Asian giant Kazakhstan, whose state-run gas firm Kazmunaigas Exploration is a 1.7% weighting in the MSCI Frontier Markets Index. Almost by mistake, Obama opened Iran's economy up to the world and turned on a number of risk loving money management firms in London and New York.
The impact will certainly be felt in Iran’s $100 billion stock market.
While Iran is still a decade away from being as open as the U.A.E., expectations are high in at least one London-based firm that Tehran will soon start moves to open its markets to foreign investors. Stay tuned, investors, looking for the next big thing.
"Pricing is attractive at just 5.7 times forward earnings, so the market compares favorably with many frontier and other emerging markets," says Jan Dehn, head of research at the $70 billion emerging market wealth management firm Ashmore in London.
The Iranian economy is the 18th largest in the world, but it requires considerable investment and modernization
after a long period of isolation. Many investors will likely seek exposure to Iran via businesses based in Dubai or Turkey. Companies that do business in Iran, but are not based there, will likely benefit in the short term as existing restrictions and bottlenecks still preclude effective direct investment for mainstream portfolio investors.
An idea, then: investors should look for publicly traded U.A.E and Turkish companies, especially those in the energy and finance sectors, that have big business with Iran. Here's your Iranian broker, FORBES fans. Choose wisely.
Investors should view the Iran political shift the same way they view the embargo lifting on Cuba. Big business is investigating. Money will follow.
Currently, Iran's stock market trades a mere $100 million a day.
"Over time we think most investors will eventually seek to invest in Iran directly," says Dehn.
Opportunities in Iran's equity market won't be as big a deal as its oil market. More Iranian oil cruising the seven seas bodes well for bigger, hotly traded markets.
Iran's sanction-free status means additional supplies of Iranian oil will have a depressing impact on oil prices at the margin, starting in 2016. This effect has to be offset against increased demand due to global growth and
falling inventories. Net net, a stable oil price around current levels or lower would benefit the 80% of emerging market countries that import oil, like China, which will invest heavily in Iran from herein, and India.
Tehran Stock Exchange: Call Your Broker
The stock exchange in Tehran was created in 1967, during the heyday of the Shah. Over the last 10 years, local speculators in Iran and Central Asia have made the 339 companies listed on the exchange the best kept secret in financial markets. Five years ago, on Aug. 2, 2010, the exchange's TEPIX index settled at 16,078 points. It was 66,761 points on July 7.
In June, the exchange welcomed fund managers from the U.K., Switzerland, France and Russia in an effort to put itself on their radar screens. The capital market in Iran is open to foreign investors, as any individual or institutional foreign investor is allowed to own up to 10% of the equities in any listed company in Iran. The total foreign investors’ ownership ceiling is 20% in any listed company. But foreign investors can apply for a license to own above these portfolio management levels, and even fully takeover a listed company.
Some of Iran's highest volume trades include Iran Mobile Telecom; Pardis Petrochemical; electrical components manufacturer Iran Counter; marine juggernaut Tidewater and vehicle manufacturer Bahman Group. Most of these companies are worth billions of Iranian rials. But considering that the one million rials is worth about $33, there is a lot an opportunist American can acquire on the cheap.
Political risk remains high. But if Iran can indeed become a market friendly nation, expectations for a tech savvy, relatively young Iran means a new frontier market is among us.
