World Business and Economic Analysis
World Business and Economic Analysis
Iran, Oman Encouraged Implementation of Commercial and Industrial Projects
Authorities of Iran and Oman promised here today to promote joint economic and commercial projects, and observed the involvement of the Persian country in the construction of three ports in the Arab nation.
Omani Foreign Minister Yusuf bin Alawi, who heads a delegation that is visiting Tehran, announced that several bilateral plans will be operational in the near future, including investments in areas of trade and economy.
Bin Alawi met with the Minister of Roads and Urban Development of Iran, Abbas Akhoundi and stated that Oman is ready to invest in Iran, a subject he also discussed during official talks with his Persian counterpart, Mohammad Javad Zarif.
The Omani delegation also includes the Minister of Trade and Industry, Ali bin Masoud bin Ali al Sunaidy, who talked with local officials about other issues of cooperation and partnership, as the ambitious plan to create a transport corridor Turkmenistan-Iran-Oman-Kazakhstan.
Regarding this project, Bin Alawi stated it needs some technical reforms, and noted that this corridor will help the Islamic nations to benefit from the Iranian and Omani ports.
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A leap by Tehran Stock Exchange in the past four weeks contrasts with gloom in many bourses around the world and hints at Iran's investment potential as its economy, long isolated by sanctions, rejoins the global trading system.
The TEDPIX index has soared 18.3% since Jan. 16, when the sanctions were lifted after an international deal on Iran's nuclear program. Average daily trading turnover has tripled from last year to around $150 million, according to Reuters.
The economy is still struggling: growth is close to zero, the official jobless rate exceeds 10% and many banks face mountains of bad debt.
As a result, some commentators are warning that the notoriously volatile market may not hold on to its gains.
But many investors are betting that by restoring Iran's links with the rest of the world and attracting foreign capital and technology, the end of sanctions will trigger a long-term economic boom.
"The actual benefits of the lifting of sanctions will take six to 12 months to start to feed into companies' financials," said Payam Malayeri, head of asset management at Griffon Capital, a Tehran-based firm which last month launched an offshore equity fund focused on Iran.
"Investors are discounting that now they are looking ahead to corporate earnings growth in 2017 and 2018."
Some economists think Iran's gross domestic product could grow 5-6% annually in the next several years.
That would boost corporate earnings 15-25% a year, Malayeri estimated. Also, dividend yields are high at around 12%.
So far, auto stocks have led the rally because of prospects for tie-ups with foreign firms. Iran Khodro, which announced a 50/50 venture to build cars with Peugeot, has rocketed 52%. Pharmaceutical and engineering shares have also surged, while banks and petrochemicals have underperformed.
Almost all new buying of stocks has been by local retail investors. Most foreigners remain cautious and while sending money into Iran has become easier, full international banking ties have not yet been restored.
But foreign fund inflows are picking up. Ramin Rabii, chief executive of Iranian investment group Turquoise Partners, which manages most foreign portfolio investment on Tehran Stock Exchange, estimated $10-20 million had entered in the past three months, bringing the total near $100 million.
"We may see $100 to $200 million of fresh foreign money in the next 12 months," Rabii said.
That would still be tiny compared to the market's capitalization, equivalent to $94 billion at the market exchange rate, but it would begin to establish foreign investors as a significant force.
> Risks
However, there is plenty of risk. Debts in the banking sector, red tape and restrictive labor laws may slow any economic boom.
Initially, some companies or sectors could actually suffer as the lifting of sanctions exposes them to more competition. Renaissance Capital says steel producers' profit margins may shrink, as imports of cheap metal increase.
In an apparent effort to reassure investors that the uptrend in equity prices is justified, Economy Minister Ali Tayyebnia visited the exchange on Sunday and spoke positively about the market's gains.
But there are some powerful factors supporting the bourse's uptrend. Under many ways of valuing stocks, Iranian equities are still cheap by international standards.
"The market is trading at 7-7.5 times this year's projected corporate earnings, above its long-term average of six times, but well below 11 times for the world's frontier markets," Rabii said.
With Iran now part of the global economy, valuations may come closer to international levels.
"Falling bank deposit rates could push billions of dollars into stocks," Malayeri said.
Deposit rates soared in the sanctions era, when inflation was high and the rial weak. Authorities have begun guiding them down from above 20%.
Rabii said inefficiencies and distortions of the sanctions era had left pockets of value in the stock market, which both local and foreign investors would exploit in the coming years.
"You could buy a cement plant by acquiring a company for a third of the cost of building one from scratch," he said. "This is the kind of thing which will attract foreign investment."
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Irish exporters are missing out on a “huge opportunity” to take advantage of the newly-open economy in Iran, the head of the country’s export association has claimed.
A slow response from government agencies to the lifting of economic sanctions last month has allowed others to steal a march on tapping into the €360bn economy, Irish Exporters Association chief executive, Simon McKeever, claimed.
“What are we doing about Iran?” he said.
“We’re the only EU country that doesn’t have a trade mission to Iran.
“There are huge opportunities out there; 80m people in the country in the centre of an economic region of about 300m. So we do think the Irish embassy in Iran should be reopened.”
Speaking on the eve of the association’s Export Leadership Forum which runs today and tomorrow in Croke Park, Mr McKeever pointed to the deals struck by Italian and French representatives with Iranian president Hassan Rouhani during his visit to the countries at the end of last month.
Italian firms alone signed deals worth $18bn (€15.9bn), while French companies were also quick to put pen to paper on further agreements when Mr Rouhani arrived.
A Department of Foreign Affairs spokesperson said, “There has always been interest in the opportunities presented by the removal of sanctions on Iran, and the Irish Government will do what it can to assist those who wish to explore this opportunity.
'It is important to note, however, that the main Irish sectors for exports to Iran food and medical supplies were never subject to sanctions.
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