LONDON: Two decades after he hauled a suitcase full of cash onto the floor of the Moscow stock exchange to buy up shares in the aftermath of communism, Dominic Bokor-Ingram has taken a similar early punt on Iran.
The Briton launched a joint-venture fund with Iranian investment group Turquoise Partners on Sunday, just one day after the announcement most international sanctions on Iran would be lifted in return for restrictions on Tehran's nuclear programme.
He was not alone. Clemente Cappello, CEO of London-based Sturgeon Capital, bought the first stocks for his new Iran fund in December.
He used internal money and complex transfers that will no longer be needed as Iran rejoins the international financial transactions system SWIFT but hopes to start buying shares for European investors next month.
Well ahead of the pack, the two men will have to wait a while before major portfolio investors plough money into a market still fraught with risk.
Both said having a strong local partner was key.
"Investor relations is not very well developed," said Cappello, who works with a local brokerage and has hired a Farsi-speaking equity analyst, adding only some of the financial data were in English, while annual reports and commentary were published in Iranian.
Small non-US investment funds are less encumbered by the few remaining sanctions and more flexible to deal with tangled stock ownership structures than large portfolio investors.
But many are still wary.
Iran's economy has been curtailed under a complicated web of restrictions. While the UN and European Union announced lifting nuclear related sanctions, the United States abolished the most dramatic restrictions against non-US actors but kept those against US actors in place.
"Like many others we are wary of being the frontrunners in this... and the US have not spelled out all the details yet," said Khaled Abdel Majeed, CIO of boutique investment firm MENA Capital whose regional Middle East and North Africa fund cannot invest in Iran as it is also marketed to US investors.
"It is a bit wait and see," he said, adding he was hoping for a March launch of a so-called UCITS fund that is regulated under EU law and targeted at European retail investors, and use that vehicle to invest in Iranian stocks.
DIVERSE OFFERING
Those who are invested are keen to play up its advantages.
"The opportunity you get in Iran doesn't appear anywhere else - the other markets that are opening up like Myanmar, Cuba or Ethiopia, they don't even have stock exchanges," said Bokor-Ingram, of Charlemagne Capital, who started travelling to Iran two years ago to check out investment prospects.
The 80-million-strong country is classified as middle-income with a well educated population and has an annual output of some US$400 billion - larger than established frontier countries such as Thailand or South Africa.
The bourse has diverse listings thanks to a broad industrial base unusual among its regional oil exporting peers, whose stock markets are often dominated by energy and petrochemicals as well as financial listings.
The headline numbers are enticing. More than 600 companies are listed on two stock exchanges, the Tehran Stock Exchange (TSE) and the Farabourse small-cap market, according to Sturgeon Capital.
Bokor-Ingram's joint-venture fund holds around US$50 million of 18 Tehran-listed stocks.
The TSE's market cap stood at 2,873,072 billion Iranian rials (US$97 billion at the official exchange rate) while daily volumes over the past few days was around 2,000 billion rials, according to the bourse's website.
Yet investors will want to avoid companies with ties to Iran's powerful Revolutionary Guards, still subject to sanctions for terrorism, human rights abuses, and missile activities. And weeding out illiquid, badly run companies in unattractive sectors further shrinks the shortlist.
BEYOND THE FRONTIER
For some, progress has been slower than anticipated.
London-based boutique First Frontier had planned to launch an Iran sanctions-compliant fund last summer and aimed to have 100 million euros invested by year-end 2015, yet so far the fund has not been launched.
"The client feedback was they still wanted to go through the education process first of all... rather than jump straight into it," First Frontier co-CEO Richard Adley said, adding he still hoped to launch an Iran fund.
Isolation from international financial markets for more than a decade means Iran is also not a member of any of the emerging or frontier equity indexes, meaning it is effectively off the radar for asset managers aligning their portfolios with benchmarks produced by the likes of MSCI or FTSE Russell.
"Iran isn't even a frontier country yet, so it is just not part of our reference universe," said Will Ballard, head of emerging markets and Asia-Pacific equities at major institutional investment house Aviva Investors.
"It is going to be a while before that big institutional money will come in," predicts Bokor-Ingram.
While investors are excited about the opportunities, they are divided over the extent of the impact on the economy and individual companies of new competition from the outside world.
"The consensus is this is all great for the whole of the business environment," said Sturgeon Capital's equity analyst Kiyan Zandiyeh. "But the reality is that it is not, there are many companies and many industries that will be heavily disrupted."
The next big momentum is likely to come from investors inside the country rather than outside.
Iran will also have access to billions of dollars of its frozen assets overseas of which some, once repatriated, will end up in shares. And interest rates, well above 20% to curtail inflation bloated by sanctions, are set to come down, freeing capital that could find its way into local stocks. - Reuters
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