Investors in Iran’s stock market have enjoyed a bumper 2016 so far, but many obstacles need to be overcome before the Tehran Stock Exchange manages to attract the level of foreign investment it’s hoping for since the lifting of sanctions and the opening up of the country after more than a decade of international isolation.
By mid-March, the main TEDPIX index was up over 30% since the start of the year. The leading listed company, Naghshe Jahan, was up 84% over the past 12 months, with the majority of that growth coming since the nuclear agreement between Iran and the West came into effect on January 16. The exchange’s combined market capitalization has risen from IRR2.81 trillion (€73.7bn) 12 months ago to IRR3.38 trillion (€88.5bn) by March.
The bourse, which is seeing hordes of new traders flocking to the main Ferdowsi Street trading floor in Tehran’s central business district, is doing its bit too. As well as a new English language website, it has signed several deals to help raise its profile both locally and internationally. On March 10, the TSE announced that several new companies would IPO and it would specifically aim to attract more foreign money in the upcoming Iranian year 1395 (starting March 21).
Iran has never rejected foreign money or interest on any of its trading floors, whether that is the Tehran Stock Exchange, the Iran Mercantile Exchange or even the Iran Fara Bourse (Over-the-Counter). But due to sanctions blocking transactions, this has never really been a feasible or logical option for global traders.
With the ending of sanctions pricking the interest of global investors, the bourse is looking to cash in. In October of last year, the TSE signed a memorandum of understanding with Turkey’s up-and-coming Borsa İstanbul – the first step in what it hopes will be increasing cooperation and closer bilateral relations. On February 29, the first Iran-Turkey Capital Markets Forum was held in Tehran.
The bourse also recently issued 500 trading codes to non-Iranian traders, with as many as 200 of these accounts now being used on a daily basis, according to the organization.
Even so, as pro-active as the TSE is being, the slow take-up in actual day trading – stock trading by foreigners was a meagre IRR280bn over the last quarter of the Iranian year (December 20-March 16) – and can be attributed to the inability of foreigners to actually transfer hard currency to Tehran.
This is one of several problems that were highlighted at February’s inaugural Iran-Turkey Capital Markets Forum. Among these are the capital market’s lack of transparent regulations for foreigners and opaque rules, as well as the volatility of trading and the sharp swings in the country’s currency.
At the joint event, both sides signed an intention to list their respective indices on each other’s markets, however such a deal couldn’t be completed because of several issues preventing the entrance of Turkish companies into Iran. “The international investors need financial statements to analyze the market, but Iranian companies cannot provide that,” one attendee of the event noted. “Volatile exchange rates are another obstacle against implementing the agreement.”
In the meantime, the TSE is looking to leverage the good news headlines that the nuclear deal has brought about and the surge in interest in the country from frontier market investors. The TSE’s director, Hassan Ghalibaf-Asl, is on a one-man campaign to promote the bourse as an area of special interest for investment, including doing keynote speeches in English (a language he is reportedly not strong in) at events like the Europe-Iran Forum last autumn in Geneva, Switzerland.
As one independent trader sums up: “Market entry will be tough. Iranian capital markets still need regulatory reforms especially regarding disclosure [and] investment needs a deep understanding of Iran’s unique economic structure.”
“But with risk comes reward,” he adds.