Tehran’s stock market had an average return of 130 percent last year. But negative sentiment is currently reining in the market. The economic impact of the US-led sanctions is being felt by the industries and, as a result, investors are feeling the consequences on the market trading floors. Also, stock picking is particularly tough in Iran, as news and information are opaque and sparse.
So, is it viable to invest in the Tehran Stock Exchange? Is there an easy way of doing it? Maybe.
Many of the listed companies at the TSE are undervalued due to political risks and sanctions weighing on the industries. Average price to earnings ratios are under six, while the average P/E for the S&P 500 is over 19, according to the Wall Street Journal. Also as a result of sanctions, many companies are working below capacity but with good winds they will drop their sails. This situation presents a good opportunity for grabbing bargains.
Of course an apparent risk is a breakdown of the nuclear talks between Iran and the P5+1 group of mostly western powers. The possibility of such an incident is one of the reasons behind TSE’s appalling performance. But most expect at least a partial easing of sanctions after the November 24 deadline.
As for investing; yes, a lack of company data plagues investors. And insider trading is common practice in the market. Brokers place special client orders on the top of their to-do list and trade for their own accounts, sometimes against their clients. But there is an answer and that is professional investors because they are the insiders.
Investment industry professionals get the news first, have access to information that are not made public, and receive preferential treatment from brokers. In this sense it’s better to put your money in mutual funds than to invest yourself and one of the easiest ways to do so is buying shares of Exchange Traded Funds.
By owning an ETF, you get diversification as well as the ability to purchase as little as one share. Another advantage is that the expense ratios for ETFs are lower than those of the average mutual fund. Also, to buy investment units in mutual funds you have to visit their office while ETF shares can be bought and sold online.
ETFs experience price changes throughout the day as they are bought and sold. Because it trades like a stock, an ETF does not have its net asset value (NAV) calculated every day like a mutual fund does. When buying and selling ETFs, you have to pay the same commission to your broker that you’d pay on any regular order.
New Breed of Mutual Funds
ETFs are quite new in Iran. The oldest of them started trading around 13 months ago. The rest haven’t reached their first anniversary. But they are growing in number. Now there are six of them. Their rise has come after the regulatory revolution that started six years ago.
Perhaps it’s too early to judge them, especially given the bear market that has taken over the equity market for the past year. But most of the ETFs have beaten the market in the past six months.
The best performer, Sepehr Andisheh Novin beat the Tehran Stock Exchange by 9.3 percent. The fund, managed by Novin Investment Bank, netted investors a 7.8 percent return for the period. The TEDPIX, TSE’s main index has slipped 1.5 percent in the past six months.
The second and third spots went to Arman Sepehr Ayandegan (ASAM) and Tose’e Andoukhte Ayandeh (ATLAS) giving investors a 3.2 percent and a 1.5 percent return, respectively.
The superior returns capped by these three ETFs are mostly because apart from investing in equities, part of their portfolio was put in debt securities. Banks offer 14 to 16 percent interest on six-month deposits, which greatly enhances the performance of these funds.
Equity ETFs, on the other hand, have done worse than the market. Aseman Armani (ASAS), managed by Aseman Fund Management decreased the wealth of its investors by 2.2 percent. Sepehr Charisma (KARIS) did even worse than ASAS, plunging by 3.9 percent only in six months.
Regardless of the current downtrend of Iran’s equity market, ETFs are one of the best ways of getting into stocks, especially for those not familiar with the ins and outs of the capital market. For now, investors must keep their fingers crossed for the nuclear talks to go well because ‘all’s well that ends well’.
