Firms Reap Significant Profits on Tehran Stock Exchange, Dunia Frontier Finds

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The Tehran Stock Exchange’s (TSE) all-price index has rallied more than 85% since Rouhani’s election, creating tremendous upside for potential investors according to Edge MarketWatch, Dunia Frontier’s biweekly report on tradable insights in emerging markets.

Ranked among the world’s most profitable exchanges, the TSE’s top performance in the past two years reaped solid profits for companies, despite sanctions. Local stocks are one of the only profitable investment vehicles available for many wealthy Iranians who have been forced into domestic investments due to restricted access to international banks, high real estate prices, high gold prices, and a weak Rial-dollar exchange rate. “We see a tremendous upside in the Tehran Stock Exchange if the sanctions are lifted. The Iranian stock market is opening up to investors and offering lucrative opportunities; stocks in various sectors listed on the TSE have been recording excellent performance, recently and historically, while remaining relatively cheap”, says Loubna El Hassan, lead research associate at Dunia Frontier.

Banks and oil companies drove the stock market last year with gains of more than 120% year-on-year in the financial industry and more than 100% year-on-year in the oil and gas sector. Bank Saderat Iran and Parsian Oil & Gas Development performed particularly well. This speculative growth is likely to continue until a nuclear deal is concluded. Dunia Frontier is forecasting a similar positive price bump in other sectors such as the petrochemical, automotive, and pharmaceutical industries should companies succeed in cementing lucrative deals with international companies on the back of potential sanctions relief.

The Rial’s weakening this week steps up the pressure for economic reform despite inflation rate decreases and moderate gains in GDP. A bylaw on foreign investment, ratified in 2010 by the Council of Ministers which raised the ceiling on foreign participation from 10% to 20%, enabled foreign investors to participate in the TSE for the first time and to trade shares (including OTC). However due to ongoing sanctions, foreign investments currently stands at a meager 1% of the total TSE investments. The TSE’s long term growth and more importantly, credibility, is highly contingent on greater transparency and minimizing political interference. Besides sanctions, chronic corruption and insider dealing currently temper Iran’s tremendous opportunity for growth. Positive government actions would include replacing the head of the TSE and implementing the foreign portfolio investment bylaw.

Dunia Frontier Consultants is a Dubai-based firm that provides financial consulting services to investors and companies operating on the frontiers of 21st century business. Dunia specializes in on-the-ground market research, commercial due diligence, third party valuation, and risk reporting/analysis for investors and MNC’s operating in the Middle East, North and Sub-Saharan Africa through a region-wide network of in-country researchers.

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Jacquelyn Johnstone
since: 05/2014
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