The framework agreement between Iran and five permanent members of the UN Security Council plus Germany (P5+1) will take time to finalize, and the sanctions will roll back in due course, but markets are forward looking and the race for buying into Tehran’s capital markets has already started.
Talks between Tehran and six world powers – Britain, China, France, Germany, Russia and the United States – blew past a self-imposed March 31 deadline. But ultimately, a Joint Comprehensive Plan of Action (JCPOA) emerged from the exhausting talks between the two sides. The negotiators left till June 30 to hash out the details of the final deal – an even tougher task.
Based on the JCPOA, all nuclear-related sanctions against Iran will be terminated as Iran’s commitments are verified by the International Atomic Energy Agency (IAEA). These sanctions include those imposed by the US and EU and all past UN Security Council resolutions.
Almost all the listed companies in Iran’s two exchanges have been influenced by sanctions. Chief among those are banking, petrochemical and refinery shares.
Iran’s various commercial lenders have either been directly sanctioned or have lost business due to cut off from global financial markets – because the Central Bank of Iran was banned from SWIFT global interbank network.
Petrochemical producers and refiners have had an even harder time. Firstly, a ban on sales of equipment to the Iranian petroleum industry affected their production capacities. Secondly, industrialist found the transfer of their export revenues costly and time-consuming, bordering on the impossible, due to banking sanctions. Thirdly, a cap on petroleum revenues and falling oil production, as a result of the sanctions, raised their feedstock prices further eradicating their income.
The effect of sanctions on companies coupled with domestic economic tumult increased risk aversion and led to a bearish view of Iran’s equity markets. These sent the TSE’s main index down 20 percent last year. All this is set to change with the JCPOA.
The sanctions will take time to roll back as implementation and verification is a lengthy process, meaning that the effects of the deal on the economy will take time to materialize, reversing the earnings trend of companies. However, investors are unlikely to wait for that. Anyone who does will be left behind.
Iran’s two equity markets, the Tehran Stock Exchange and Iran Farabourse – Iran’s over-the-counter market, have both recorded historic gains in the first two trading days after the JCPOA was reached.
The TSE surged 3.19 percent to a three-month high on Saturday. Media reported the gains as unprecedented in the market’s 48 year history. The record was broken, when the TEDPIX jumped 3.59 percent to its highest since Dec. 14, on Sunday.
Iran Farabourse, a market less restricted by volatility caps, has gained even more. Its index, the IFX, has soared 10.7 percent in the two trading days after framework accord.
Industries most affected by sanctions were the main gainers of the JCPOA coming out of Switzerland, where negotiations were held, though no industry was left out of the party in Tehran’s stock markets.
Investors are positioning their portfolios to reap the rewards of the change in the weather. Money managers have already started the hunt for lucrative stocks and foreign investors are eyeing businesses for buyouts and investment. With a market cap over $95.7 billion, at its bottom, and share prices below their intrinsic value, the Tehran Stock Exchange and the Iran FaraBourse hold high potential for growth, and everybody wants in.
