Jim Rogers, the co-founder of Quantum Hedge Fund with George Soros, set off on an overland trip to 116 countries in 1999 to chronicle the world at the turn of the millennium. One country denied him avisa: Iran.
“I was trying to visit the country and see the exchange and perhaps my companies,” he said.
Rogers, who drew on his travel experiences for a book, “Adventure Capitalist,” has been an investor in Iran for almost 10 years. He said that his shares, which he declined to name, have risen “an enormous amount” since he bought them in the early 1990s.
As OPEC’s No. 2 oil producer, Iran has benefited from the 50 per cent rise in the price of Brent crude oil since the end of 2001. Last year, the Teheran Stock Exchange’s index climbed 116 per cent and the market value of the 342 listed companies grew 140 per cent to US$34.5 billion, as investors shrugged off the war in Iraq and US pressure to open up Iran’s nuclear-energy programme. By comparison, the Morgan Stanley Index of Emerging Markets rose 42 per cent last year.
Rogers, 61, is one of the few outside investors to hold Iranian shares because foreign ownership has been banned since 1996. That may change. Authorities are preparing a partial opening of the exchange to foreign investors this year, in a US$5 billion drive to sell shares in State-owned companies.
Share offerings
“We are in the process of passing laws to offer as much as 10 per cent of the exchange to foreign portfolio managers,” said Hussein Abdoh Tabrizi, the TSE’s secretary-general, in an interview. “With the market’s natural growth, and government privatization plans, I think we’ll have a US$100 billion market in two years.”
To attract foreign investors, Iran Khodro Co, the Middle East’s biggest automaker, will sell 10 per cent of its stock in Luxembourg and seek to raise US$500 million through bond sales and loans, a company official said.
With GDP of US$111 billion, two-thirds of the 70 million population under the age of 30, and an economy expected by the International Monetary Fund to grow more than 8 per cent this year, Iran is drawing investors who bet on continued growth.
One reason: The government, which controls 80 per cent of the economy, has announced plans to sell shares in companies that it values at US$1 billion by March 21, and companies worth US$5 billion next year.
‘Investment framework’
“The market, despite its stellar performance in the last two years, continues to offer reasonable valuations relative to growth,” said Ahmad Zuaiter, a portfolio manager at Morgan Stanley in New York, where he focuses on emerging markets. Zuaiter does not hold Iranian stocks.
“Even if you think Iran is undergoing a bubble-like rise, I would argue that the liquidity-driven rally remains in its infancy,” he said.
Western investors in the country face challenges. The Islamic government nationalized most industries after taking power in 1979. Only in the past 18 months has President Mohammad Khatami’s seven- year-old government tried to overhaul the economy, passing a law protecting foreign direct investment.
“Iran has considerable potential, but the investment framework has to be secure if foreign investors are going to participate,” said Philip Ehrmann, who oversees US$800 million in emerging-market stocks for Gartmore Investment Management in London. He does not own Iranian shares.
First fund
The authorities folded what was to have been a 50 million euro (US$59 million) Iran-only investment fund, sponsored by the Iranian Government and created in early 2003 to attract foreign investors, because of concern about stoking the market and fuelling inflation.
The fund was ended in the fourth quarter of last year after Tahmasb Mazaheri, the economic affairs and finance minister, reversed a plan to back it, said Tristan Clube, a fund manager at Egyptian bank EFG-Hermes Holding. It was going to manage the money, which has been returned to investors.
“The Iranian Government said they were not going to honour the existing arrangements, so the fund was wound up,” said Tom Rodwell, co-manager of the US$695 million Pictet Emerging Markets Fund in London, who had considered investing in Iran.
Asian Capital Partners Ltd, a Hong Kong-based investment adviser, is awaiting final approval to start an Iranian fund with 100 million euros (US$84 million) of assets in partnership with Bank Melli, Iran’s biggest bank.
Autos, petrochemicals
“We are encouraged to believe that we may get consent within the next few months,” said Asian Capital Chief Executive Andrew Korner. The fund would invest in automobile, food, textile and petrochemical producers, he said.
Gartmore’s Ehrmann said that in addition to oil shares, he likes consumer and industrial stocks. The top 30 companies on the Teheran Stock Exchange by market value are active in the automotive, petrochemical and manufacturing industries.
Spectators
On one trading day last month, the public gallery at the stock exchange on Hafez Street, not far from the presidential palace, was packed with men and roughly a dozen women in black chadors staring at the rows of television screens displaying prices and using the touch-screen computers.
The exchange occupies a 17-story dirty grey building near an expressway bridge which offloads hundreds of speeding cars into local traffic. Opposite the exchange, a 10-foot poster informs the Muslim faithful that Friday prayers have moved to a new location.
Inside the public gallery, men with cellphones pore over copies of the five local financial newspapers.
“You don’t want to waste your time looking at P/E ratios,” says Hamid Javani, a 34-year-old insurance broker wearing a Kenneth Cole blue windbreaker. “You have to play the rumours, see what direction the market wants to go in and then get ahead of it.”
Javani said he may quit his job soon to focus on trading. Under Iranian regulations, only licensed brokers who have passed the exchange’s own exam may trade stocks. “My own portfolio has gone up by about 150 per cent this year,” Javani said.
Foreign presence
Outside investors may have to be patient. “I applied in 1993, and it took a year and a half to get special permission,” Rogers said in a phone interview from his office in New York. “I bought 10 or 12 major companies across the board.”
“I always invest in the biggest companies when I go to an underdeveloped region, because they’re the ones to benefit most when the foreign investors come,” he added.
Some westerners are already present. Albrecht Frischenschlager, a former banker who worked in Moscow at Donau Bank AG, is not waiting for the Iranian parliament’s deliberations.
The 32-year-old Austrian has set up a brokerage, Nikan Sarmayeh, in north Tehran.
‘Catching up’
“When I got to Moscow in 1995 I saw that all the money had been made in the early 1990s,” he said. “Iran feels like the early days of Moscow after the fall of the Soviet Union. The market is just catching up after years of being quiet.”
Pension funds, government-owned banks and the State’s social security fund have holdings in about 80 per cent of companies listed on the exchange, often limiting price fluctuations, said Mohammad Boushehri, head of National Iran Oil Co’s pension fund.
With US$1 billion of assets under management, the NIOC pension fund is one of the biggest investors in the Iranian economy.
