Iranians pile into stocks as detente triggers 133% rally

Bloomberg

By Ladane Nasseri

For evidence of how Iranians are embracing President Hassan Rouhani’s pledge to re-establish ties with the world economy after decades of crippling sanctions, take a look at the Tehran Stock Exchange.

While daily trading equals only about 22 seconds worth of stock transactions in the U.S., Iran’s market has been booming. The benchmark index soared 133 percent this year through Dec. 24 to a record, beating returns posted by the 93 major global equity gauges tracked by Bloomberg. Most of the rally followed the June election of 65-year-old Rouhani, who delivered an initial accord with global powers just five months into office.

One morning last week, a 23-year-old college graduate named Samira was standing with hundreds of others inside the bourse in downtown Tehran, preparing to plunk down $600 in her first investment in the market. As stock prices flashed on screens one flight above the trading floor, Samira said she was excited to buy her first shares, something she never would have considered under Rouhani’s predecessor, Mahmoud Ahmadinejad.

“I like the feel of this -- it has a buzz,” said Samira, who declined to give her surname for fear of reprisals for talking to foreign media reporters. “Anyone you speak to these days will tell you the stock exchange is the best place to invest right now.”

Leaving Gold

Iranians are pulling out of assets that had become the conventional stores of wealth in the Islamist Republic -- gold, dollars and real estate -- to free up cash to invest in the stock market, according to Tehran-based investment boutique Turquoise Partners. While foreigners can invest on the 314-stock bourse, an international investor can’t buy more than 10 percent of a company’s shares and any involvement is limited by banking restrictions, according to Turquoise.

Trading on the exchange is surging, with $203 million worth of shares changing hands on average each day this year through November. That’s up from $83 million two years ago and just $20 million in 2006, according to data from the bourse. Average daily trading in the U.S. stock market has topped $220 billion this year, data compiled by Bloomberg show.

Banks and oil companies have been among the biggest gainers in Iran’s stock market. Saderat Bank Iran, subject to European Union sanctions since 2010, climbed as much as 142 percent this year from a 52-week low and Parsian Oil & Gas Co. has surged 87 percent from its trough.

‘Huge Flow’

“We are seeing a huge flow of fresh money from individual investors to the stock market,” Ramin Rabii, Turquoise’s managing director, said in an interview in the Iranian capital on Dec. 5. “Perception changed completely after the election and as political risk, the risk of war and risk of more sanctions decreased.”

In exchange for promising to curtail nuclear activities, Rouhani scored $7 billion in relief from sanctions, triggering speculation that OPEC’s sixth-biggest crude producer will reverse a plunge in output that has sunk the economy into recession. Oil Minister Bijan Namdar Zanganeh said earlier this month that he’s seeking to lure international companies including Exxon Mobil Corp. and Royal Dutch Shell Plc once sanctions are lifted.

Sarah Bradley, a London-based spokeswoman at Shell, declined to comment, as did Kim Jordan, an upstream media relations adviser at Exxon in Houston.

Rifts between President Barack Obama and some U.S. senators threaten to derail the deal. A bill presented in the Senate on Dec. 19 proposed placing more sanctions on the nation if it violates the accord or fails to reach a final agreement. Obama said he would veto the legislation.

Freezing Assets

Rabii, the managing director at Turquoise, said the stock market has surged “too much, too quickly.” The gains are “mostly based on sentiment rather than fundamentals,” he said.

This year’s rally in the benchmark gauge follows a 55 percent advance in 2012 and 24 percent gain the previous year. The market value of all companies on the exchange has climbed almost two thirds in dollar terms since 2011 to $175 billion.

Less than a month after Rouhani was sworn in, Tehran-based Tamin Petroleum and Petrochemical Investment Co. raised 5 trillion rials ($203 million) in an initial public offering that made it the seventh-largest stock on the exchange. The shares have jumped 61 percent since.

Rial Rallies

The currency has also jumped, appreciating 22 percent since the election to 29,700 rials per dollar, according to figures compiled by Daily Rates for Gold Coins & Foreign Currencies, a Facebook page used by traders and companies in Iran and abroad. That’s added to the dollar-based returns on stocks, following years in which the rial slumped under the strain of the international embargo and inflation that reached 39 percent by the time Ahmadinejad left office in August.

The sanctions, which included an EU embargo on Iranian oil and restrictions on banking transactions, have throttled the economy. The nation lost its spot this year as the second-biggest producer in the Organization of Petroleum Exporting Countries, having slid to sixth place by November, data compiled by Bloomberg show.

Annual oil revenue is down to less than $50 billion a year from as much as $120 billion, U.S. Secretary of State John Kerry estimated in November. The rial plunged 33 percent in the nine months before the presidential vote as the drop in oil proceeds drained dollars from the Persian Gulf country.

Crude output has declined 26 percent over the past two years, sparking a 6 percent economic contraction in the fiscal year ended March.

Nuclear Accord

The U.S., U.K., France, Germany, Russia and China agreed on Nov. 24 to ease measures targeting Iran’s crude exports. The interim deal allows for the release of $4.2 billion in frozen oil assets and will also permit Iran to export crude at current levels, rather than forcing continued buyer reductions over the next six months under existing law.

The International Monetary Fund forecasts Iran’s economy will rebound in 2014, with growth reaching 1.3 percent.

“At every step of the way, domestic and foreign investors will be keen to utilize the smallest of openings to pile into an economy that has struggled to attract private-sector investment,” Abbas Ameli-Renani, London-based emerging-market strategist at Royal Bank of Scotland Group Plc, said in a Dec. 13 e-mail.

The price-to-earnings ratio of stocks in the benchmark gauge rose 34 percent this year to 7.8, data compiled by the bourse show. That remains below multiples of 11.8 for the MSCI Emerging Market Index and 13.4 for Qatar’s QE Index. (DSM)

Stocks still look cheap to Farshid, a 27-year Iranian who works in his father’s construction company and also declined to give his surname for fear of reprisals.

Like Samira, the college grad, Farshid said he’s enthusiastic about Rouhani’s push to have the sanctions lifted. He was milling about the exchange, which was founded 46 years ago in downtown Tehran, on a recent morning to check on his stocks. He said he’s put 200 million rials into the market since the election and is eager to invest more.

“I don’t have any more cash, otherwise I would,” Farshid said. “I’m hopeful.”