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THE BROAD VIEW

Iran's economy is bleak. But its stock market is soaring

It reflects the resourcefulness of Iranian companies in evading the bite of US sanctions and even profiting because of them

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Maciej Wojtal, who oversees the investment fund Amtelon Capital, runs the only foreign fund focused on buying stocks that trade on two exchanges in Teheran.

London

HE LOOKED past Iran's cratering economy, ignored the unravelling nuclear deal and tuned out the bellicose threats of war from President Donald Trump. Maciej Wojtal was focused on a mundane yet crucial question: Where were Iran's people going to buy their chocolate biscuits?

Iranians were being forced to economise, trading lunch at kebab restaurants for cheap pleasures like sugary snacks. Mr Wojtal, who runs an investment fund devoted to Iranian stocks, identified a company poised to benefit: Gorji Biscuit was well positioned to raise prices, given that foreign competitors were forced to steer clear of Iran because of US sanctions that restricted commerce with the country. He bought its shares and watched their value multiply more than fivefold over the course of 2019.

"You have companies that actually benefit from sanctions," he said. "Whoever had to compete with imported goods, he's better off."

Born and raised in Poland, Mr Wojtal, 36, oversees the only foreign fund that is focused on buying stocks that trade on two exchanges in Teheran, a seemingly forbidding realm of finance - a marketplace overseen by an Iranian government under siege by sanctions. To avoid US-enforced prohibitions on using the dollar to transact with Iran, Mr Wojtal's fund is administered in the Netherlands and operates entirely in euros.

A fund centered on Iranian equities may also seem frivolous. Who wants to buy into a country that is, by most indications, devastated by sanctions, cut off from the rest of the world economy and seething with public anger over rising prices and declining living standards?

Mr Wojtal does. As he portrays it, obsession over sanctions misses the breadth of Iran's economy. Sanctions have barred sales of Iranian oil, a major source of revenue for the Iranian government, though unknown volumes continue to be smuggled out of the country. Oil is such a large piece of the economy that a hit to that sector is guaranteed to produce a downturn.

But beneath that headline reality is an enticing emerging market - a nation of more than 80 million people, many highly educated, intent on transcending decades of isolation to integrate with the rest of the world. Iranians have forged fast-growing businesses in an array of industries, from petrochemicals and automotive to mining and agriculture.

These are the sorts of companies that trade on the Teheran stock market, now the bearer of an unlikely distinction: Last year, it was the best performing equity market on earth, more than doubling in dollar terms. The run-up in Iranian equities perversely stems from the country's status as an international pariah.

With hardly any outside investment trickling into the country, and with an overall economy that has been rapidly contracting, stocks have been stuck at rock-bottom values. Even after soaring last year, many companies' stocks still look cheap when compared with their profits.

Resourceful companies

Still, the doubling of Teheran stock prices speaks to the resourcefulness of Iranian companies in evading the bite of the Trump administration's sanctions while, in many instances, profiting precisely because of them.

"It's an important barometer of confidence in the private sector. It shows you there is a lot of wealth in Iran," said Esfandyar Batmanghelidj, publisher of Bourse & Bazaar, a news and analysis website in London that focuses on the Iranian economy and business world.

The Iranian economy is contracting at a 9.5 per cent annual rate, according to the International Monetary Fund. Some say the stock market is an aberration in a story of strife, the product of Iranian leadership's exhorting people to entrust their savings to equities in a time of scant alternatives.

"My fear is that this doesn't end well. This thing becomes a bubble," said Adnan Mazarei, a former International Monetary Fund deputy director, now a senior fellow at the Peterson Institute for International Economics in Washington.

An unapologetic devotee to the bottom line, Mr Wojtal is not squeamish about investing in a country run by a government that imprisons political dissenters, supports an authoritarian government in Syria and fuels by proxy a brutal war in Yemen. "We just buy and sell shares."

Mr Wojtal was an equity researcher at Citigroup in Warsaw and later a trader focused on stocks and derivatives at JPMorgan Chase in London. He worked at a hedge fund, then returned to Poland to manage an investment fund.

The nuclear deal brokered by President Barack Obama in 2015 triggered Mr Wojtal's interest. Iran promised to restrict its nuclear development plans while submitting to international inspections in exchange for relief from years of stifling sanctions. With an anticipated surge of international investment, he flew to Teheran to have a look. He found a stock market that had been operating for more than two decades. Its two exchanges included some 600 companies, among them makers of everyday staples like food and cleaning products.

Bargain buys

Many companies were recording revenue growth of 30-40 per cent per year, but their stock prices were not reflecting this. The market was full of bargains. "It had the lowest valuations in the world," he said.

Mr Wojtal started his fund, Amtelon Capital - which stands for Amsterdam, Teheran, London - in July 2017, stocking it with money drawn from friends and relatives. He is based in London, and travels every other month to Iran, where he has another office.

Among his first buys was a glass producer, taking a stake in a company that made glass bottles for the pharmaceutical industry and was exporting them across Europe. He bought shares in a software producer that was making inventory management systems for Iranian companies. He bought into an Iranian copper miner.

Then, in May 2018, Mr Trump revoked US participation in the Iran nuclear deal and reimposed sanctions. Ordinary Iranians raced to exchange the domestic currency, the rial, into dollars, pushing its value down by about 70 per cent in 2018.

For Iranian exporters, a weak currency was good news. They paid workers and bought materials in rials, but earned dollars on their sales. Their profits - and stock prices - skyrocketed.

Mr Wojtal bought shares in petrochemical companies that exported urea, an element in agricultural fertiliser, and methanol, which is used in fuel and antifreeze. He bought into companies that mined zinc and iron ore. They sold their wares in dollars to domestic producers of steel.

After losing 20 per cent in 2018, Mr Wojtal's portfolio soared by nearly 170 per cent last year. The roughly 9 million euros (S$13.5 million) he now manages comes from 20 wealthy individuals from Britain, Germany, Sweden, Switzerland, Belgium and Poland. He aims to increase the fund 10 times over "as soon as possible", he said. NYTIMES