Revealed: Iran’s top firms likely to see up to $1bn of inward flows

A report by Renaissance Capital states Iran is the “largest and most important economy that is still closed to institutional investors”.

But, as sanctions are lifted along with restrictions on foreign involvement following Tuesday’s historic deal, inward flows will rise as foreign investors take a “bullish” stance.

The report said: “The $95 billion market capitalisation of the stock market is larger than five of the markets [on the MSCI Emerging Markets Index], and all MCSI frontier markets.

“With roughly $100 million daily turnover and no Iranian restrictions on foreign involvement, portfolio flows could be significant as early as 2016.

“We expect $1 billion of inflows to equities within a year of sanctions ending.”

Iran could be open to investors as early as 2016, it said – “we expect a strongly bullish stance from foreign investors”.

The internet and e-commerce sectors are likely to be among the most attractive areas for international investors.

The report said Iran’s internet population is low at around 35 percent, but it is also one of the fastest growing in the world and could soon match Turkey’s 48 percent.

Retail is another high-growth industry sector, meaning e-commerce has significant potential. “Unlike in many emerging markets, logistics infrastructure is good and electronic payment systems are relatively well developed,” the report said, highlighting local e-tailer Digikala, which has 85 percent market share.

Other companies will buy into various Turkish stocks that have operational exposure in the region.

Bassel Khatoun, chief investment officer, MENA equity, at Franklin Templeton Investments (ME), pointed out that Iran’s 80 million population and young demography (64 percent of the population is below the age of 35) creates a strong backdrop for economic growth.  

He said: “The population is well educated with over 4 million university students, over half of whom are women. Iran also possesses massive natural resource wealth with combined oil and gas reserves that are among the largest in the world. 

“This creates investment opportunities across both consumer-oriented businesses as well as commodity-focused names. 

“Moreover, it is estimated that Iran requires over $1 trillion in reinvestment, which will bring with it significant construction related opportunities.”

Khatoun noted that Iran’s circa-$400 billion economy is operating well below its potential because of the numerous economic and political shocks the country has suffered over the past decade.

This week’s agreement should help to support “a gradual revival in Iran’s economy and make for compelling equity investment opportunities should a change in the sanctions regime allow foreigners to readily access the equity market and repatriate capital freely,” he said.

Meanwhile, Renaissance Capital envisages two possible responses from Iran to increased investor interest. On one side, a conservative camp may be prepared to accept foreign direct investment into the energy sector to improve Iran’s strategic self-sufficiency but be resistant to more change, a little like Putin’s Russia over 2012-2015, the report said.

On the other, a liberal camp might use foreign investor pressure to push through social and economic reforms and recapitalise and own parts of the banking sector, like Turkey in 2002-2007.

It also predicts Iran’s oil exports will rise by 0.8 million barrels per day (b/d) to 2.4 million b/d in 2016, following this week’s deal. As a result, the European Union’s share of Iran’s exports will rebound from 2 percent in 2014 to the 17 percent seen in 2011 before oil exports were sanctioned.

Source:
Tehran Stock Exchange