Iran the land of investment

  • October 23, 2018

why Iran is the land of opportunity for smart investors? 

From Maciej Wojtal, the founder and CEO at  Melon capital, the only European asset manager focused on the Iranian capital market. 

Iran is a fascinating country because, it’s a big country with 83 million people like Turkey but with the largest oil and gas reserves in the world, so much larger than Saudi Arabia, plus many other resources. It’s the biggest capitalist, its resources, its human capital, young and educated workforce that is currently earning less than workers in Vietnam that eventually will create a proper consumer market over there. the special thing about Iran is obviously that its been under sanctions for about 40 years, it has not been integrated with the global economy. It missed on everything good that happened in emerging markets like globalization, fallen interest rates, and with gradual opening, which began in 2016, the country is poised to catch up. 

Sanctions on Iran 

there are two sorts of US sanctions: ّFirst, primary sanctions which say that US persons cannot do anything in Iran unless they get a special license and second, secondary sanctions which target selected industries and a long list of entities and individuals that no one should be doing business with. these two types of sanctions exist now despite the lifting of UN sanctions in 2016 which made the investment in Iran legal for everyone. 

So, Iran has been under sanctions for so long, thus, Iran had to develop a well-diversified economy to become self-sufficient. so even though Iran has such large oil and gas reserves, oil exports are just 18% of its GDP and Iran has proper production and services industries which are also reflected in the stock market, which is a liquid, large, and diversified stock market, so not many people are aware that you can invest in Iran where the stock market has 600 companies listed,$110 billion market cap, more than $140 million of daily liquidity and stock are spread across 50 different industries, so it’s not a proxy on oil prices. 

Understanding opportunity in Iran 

The broader opportunity is that you have a market that is still not accessible for most investors. Hence, all foreign investors are less than half a percent of the market cap. one of the effects of that is that you have the lowest valuations in the world. so you’re buying stocks at three to four times forward earnings. those earnings are growing, especially right now, they’re growing at high double digits. 

Why now? 

There are two things when you think about Iran: 

In the near term, the immediate opportunity is coming from sanctions because many companies (actually most of the market cap) of the stock exchange are worth less than their dollar value, also, there are exports companies, which benefit from the depreciation of the local currency, or domestic companies that benefit from trade disruptions and inputs going down. Just like what happened in 2018 which there was a lot of volatility on the market. Why? because the US administration was imposing new sanctions. this caused panic in Iran in terms of individual Iranians buying dollars on the bazaar, Which caused a 70% decrease in the value of the rial against the dollar. the stock market was very volatile, especially when you measure this in the US dollar. the best way to stay safe from these fluctuations was to reduce the risk and volatility by invest in the stocks of listed companies. what changed in this time and make a great make great opportunity is that the currency stabilized because of political changes. exports are so obviously more competitive so there are more profitable companies that have a very cheap production but sell it at dollar high price. this situation will be interesting more when With the coming to power of a moderate democratic government of US, IRAN, US and 5+1 agree again then exporters can reach other countries without sanctions. but actually, what is most exciting are the domestic companies that benefit from the trade disruptions so what happened is that in many areas, all the cheap products that were imported from China are too expensive now so they’re not competitive anymore. plus it’s more difficult from the logistics point of view because of sanctions, payments are more difficult, and so on. What’s happening is that local companies are gaining market share so volumes go up and can also increase prices faster than inflation. many industries, we see the highest earnings growth at the moment since at least 2013. 

 To conclude, as it is obvious Iran’s economy is a very high potential economy due to time, economic and political situation which most of the Iranian markets Are at their lowest price, so, now is the best opportunity for investors to collect a profitable and logical investment basket. 

2 thoughts on “Iran the land of investment

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