London-based fund manager Maciej Wojtal discusses the difficulties of accessing information about the Iranian Stock Exchange and highlights the potential and challenges of the Iranian stock market. Topics include the size and liquidity of the Tehran stock exchange, sanctions and capital controls, geopolitical risks, recent market performance, currency volatility, and the impact of recent developments on the Iranian stock market.
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Quick takeaways
The Iranian stock market offers low valuations, attractive dividends, and potential for future growth despite limited foreign investment due to sanctions.
The Iranian stock market has historically performed relatively well during geopolitical events, with the benchmark equity index comparable to the S&P 500 in terms of long-term performance.
Deep dives
The Unfamiliar Iranian Stock Market
Despite being a relatively big middle-income country, the Iranian stock market remains unfamiliar to most investors due to sanctions and limited access to data. With no access to data on the Turan Stock Exchange, it's difficult to get an accurate picture of the market's performance and composition. However, the market exists with a wide range of listed companies across different industries, presenting investment opportunities. Despite geopolitical risks, there is potential for the Iranian economy to grow significantly, considering its large population, abundant resources, and diversified economy. Foreign investment remains limited due to sanctions, but the Iranian stock market offers low valuations, attractive dividends, and potential for future growth.
Recent Performance and Liquidity
The Iranian stock market recently experienced volatility along with the devaluation of the local currency. However, the market has shown resilience and bounced back after the initial downturn. While the currency remains weaker, the local equity index has recovered its losses in local currency terms. The lower liquidity in the market during this period mainly affected illiquid stocks and industries. Retail investors, who dominate the market, have been the driving force behind share price movements, often influenced by short-term momentum and interest rates. Despite the volatility, Iranian stocks have historically performed relatively well during geopolitical events, and the long-term performance of the benchmark equity index has been comparable to that of the S&P 500.
Drivers of Retail Sentiment and Investment
Retail sentiment and investment in Iran are primarily influenced by the exchange rate of the local currency, the momentum of the stock market, and local interest rates. Real estate and used cars are popular investment options, driven by inflation hedging and limited access to other assets. The Iranian population, especially the younger generation, has its own vision for the country's future and desires a liberalized lifestyle. However, due to limited capital, the market relies heavily on domestic retail investors, who react emotionally and exhibit short-term momentum-driven behavior. Geopolitical risks and uncertainties also impact sentiment, with equities often priced for worst-case scenarios.
Future Potential and Regional Integration
The Iranian market holds significant potential for growth considering its population, abundant natural resources, and diversified economy. The country's integration into regional organizations like BRICS and the Shanghai Cooperation Organization indicates Iran's acceptance and potential for deeper regional integration. The younger demographic and changing societal dynamics are driving expectations of further liberalization and economic development. Although global integration remains uncertain, regional opportunities and partnerships with major economies in the vicinity could shape Iran's future prospects, potentially unlocking the country's true economic potential.
Back in 2020, we spoke with Maciej Wojtal, a London-based fund manager who specializes in Iranian stocks. This market is one of the most unfamiliar in the world and most investors can't even look up where the country's shares are trading given ongoing sanctions. Of course, there's also constantly changing geopolitical risk, which has only picked up in light of the Israel-Hamas war. In this episode, we find out what's been going on with Iranian stocks in the midst of the recent upheaval and dig deeper into its overall economy after years of isolation from the Western world.