By Rupert Hargreaves
According to Sturgeon Capital, the firm that started up in December with the goal to invest exclusively in Iran, falling interest rates are the “single biggest catalyst” for an equity market rally in the country.
Iran: One of the most attractive emerging markets?
As reported in the Bloomberg Brief Hedge Fund newsletter, Sturgeon believes that Iran is one of the most attractive emerging markets out there today, and the country’s sky-high interest rates of 21% leave plenty of room for further monetary easing.
Sturgeon Capital Inagural Report On Iran Strategy
Iran’s central bank has become more hawkish in recent months. The country’s inflation rate, which hit a high of 40% in 2013, has fallen to 12.6% in the 12 months ending February 19 and now that sanctions against the country have been lifted inflation should fall further. Interest rates should soon start to reflect this disinflationary trend.
According to Clemente Cappello, founder of the London based Sturgeon:
“We expect them [interest rates] to go down gradually to higher single digits. That should provide a big boost for the stock markets because it means your cost of capital is going down, it means the interest rates you’re getting from bank deposits will be reduced and therefore, it makes the stock market comparatively more attractive.”
To play the falling interest rate trend, Sturgeon is focusing on small-cap, family-owned companies in Iran’s industrial and consumer sectors, which have strong export potential.
A great example is the glass sector. The main cost inputs for Iranian glass companies are labour, energy and sand — all of which are in abundant supply in the country. Other examples of companies the fund is interested in are; a utility company that services the petrochemical sector; an Internet provider, a payment processing company and; a vegetable oil producer.
Now that sanctions against the company have been lifted, Sturgeon’s investment universe has widened from 50 to all 600 companies listed on the Iranian stock exchange – that total excludes four entities controlled by Iran’s Revolutionary Guard Corps.
With Sanctions Gone, Is Iran A Hot Investment Destination?
According to Bloomberg Brief, Greylock Capital Management is also bullish on the outlook for Iran’s stock market as foreign investors and multinationals flock back to the country after last year’s historic nuclear deal.
According to Greylock’s CEO and chairman, Hans Humes, who traveled to Iran in June, the biggest opportunities for investors are Iran’s energy, infrastructure and corporate services markets where investment opportunities may be worth “multiple tens of billions” of dollars in the next five to ten years, assuming political stability.
However, there are risks and some are more skeptical. Recent actions by Iran may give one a reason to be a bit more hesitant from either an ethical and/or realist point of view.
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