42% More Foreign Investors in Iran’s Capital Market Post Sanctions

The number of foreign entities investing in Iran's capital market has increased 42% since the removal of sanctions imposed on Iran over its nuclear program.

"Latest statistics show, 264 foreign investors received trading codes over the past year, which shows a 42% rise compared with the corresponding period of a year before," chief executive of Central Securities Depository of Iran, Mohammad Reza Mohseni, was quoted as saying by IRNA.

World powers agreed to lift sanctions against Iran on January 16, 2016, as part of a landmark nuclear deal signed in 2015. In exchange, Iran agreed to limit the scope of its nuclear program.

Earlier, the CDSI reported that 20 foreign trading codes were issued during the Iranian month of Aban (ended November 20) to bring the total number of foreign traders in Iran's capital market to 746.

Last year, SEO's vice chairman for international and foreign affairs, Bahador Bijani, said Germans constitute a considerable segment of foreign investors in Iran's securities market.

"Investments from Germany make up half the total investments by foreigners," he was quoted as saying by IRNA.

Apart from Germany, investors from the United States, the United Kingdom, Spain, Russia, Switzerland, Sweden, Uzbekistan, China, the Netherlands, India, Turkey, Lebanon, South Africa, Japan, the UAE, Norway, Greece, Poland, Hong Kong, Iraq, Pakistan, Syria, Luxemburg, Kuwait, New Zealand, Malaysia and South Korea are trading in Iran’s equity market.

According to Saeed Fallahpour, Securities and Exchange Organization's board member, foreign investment in Iran's capital market stood at 1,397 billion rials (about $35.7 million at market exchange rate) at the beginning of the fiscal March 2013-14. The figure grew 782% to stand at 12,321 billion rials (about $314.8 million) by the end of the Iranian month of Azar this year (December 20, 2016).

Back in November, Bank Mellat, one of Iran's largest lenders, signed a contract with CSDI to facilitate foreign investment in Iranian securities.

The deal is a pilot scheme to help ease foreign investment. Until recently, foreign investors received trading codes and traded in Iranian securities after registering with SEO and CSDI. However, opening bank accounts and dealing with brokers to buy securities were not straightforward, which posed problems for foreigners.

Foreign exchange was another problem. Though sanctions against Iran's banking system were removed a year ago, few foreign banks established links with Iranian lenders who are far behind on regulatory issues, technology and expertise.

Bank Mellat secured a contract to handle both securities trading and currency exchange for foreign investors with CSDI's assistance.

When investors decide to buy securities, Bank Mellat will convert their money to rials at open market rates within a day.

The bank will apply the average daily exchange rate provided by the Association of Bureaux de Change Operators of Iran.

Subsequently, Mellat will wire the money to CSDI's account with the bank and buy the ordered securities. CSDI will then issue ownership certificates for the securities in the foreign investor's name, as it does with Iranian traders.

Iranian officials are making efforts to streamline investment regulations and increase market transparency to attract foreign investment to Tehran's securities markets. Increased foreign investment would grease the wheels of Tehran Stock Exchange and the over-the-counter market Iran Fara Bourse and provide the much-needed liquidity.

On Monday, IFB's chief executive, Amir Hamouni, announced that IFB has attracted 5 trillion rials (about $125 million) in foreign investment since Implementation Day–the day nuclear sanctions were rolled back.

In an interview with IRNA, Hamouni said half of the figure pertains to the exchange's debt market and the remaining has gone to its stock market.

"Most of the investors have come from Germany, Persian Gulf littoral states and those in East Asia," he said.