Iran is Turkey with oil. That, at least, was the basic conclusion Charlie Robertson of Renaissance Capital drew from a recent trip to Tehran.The assessment reflects a growing consensus that the withdrawal of sanctions on the country over its nuclear program the hoped-for outcome of a tentative six-month easing by the U.S. and Europe would be a huge boon for the country, the region and for investors who get in early.
Indeed, If you ask Mr. Robertson, an opening-up of Irans $500 billion economy could have an impact on par with the revival Turkey has seen in the wake of reforms that followed a major financial crisis in 2001.
Tehran feels like Ankara did in 2004, Mr. Robertson, Rennaisances global chief economist, wrote in a report on his recent trip. Iran has a broad manufacturing base which produced 50% more cars than Turkey in 2011 but unlike Turkey, it has 9% of the worlds oil reserves and a large current-account surplus.
Paired with the reform agenda of Irans president, Hassan Rouhani, those basic conditions are looking better and better, Mr. Robertson said in his report. Under Mr. Rouhanis guidance, Iran is making monetary and budgetary adjustments emerging-market investors tend to like, which have tamed inflation and perhaps more importantly stabilized the countrys free-falling currency. This looks to us like a potential re-rating play that could in an investable scenario attract those investors who have recently invested in Saudi Arabia, like those who invested in Turkey after 2001 and Russia since the 1990s, Mr. Robertson wrote.
Irans stock market, moreover, has a capitalization of about $170 billion roughly the same as Poland and a free float similar in scale to Nigerias. If all of the listed companies qualified for inclusion in the MSCI frontier markets index, Mr. Robertson reckons Iran would compose 25% of the index.
Many economists say the withdrawal of sanctions on a more permanent basis would make Iran a big new opportunity, one that has been on the shelf for most foreign investors for over three decades.
The positive repercussions if that scenario were to emerge are difficult to overestimate for everybody, said Marie Owens Thomsen, the chief economist at Credit Agricole Private Banking in Geneva, though she cautioned that an easing of regional political tensions wasnt necessarily going to be easy or quick.
Its a bit of a Goldilocks scenario, she said. Its hard to believe that would materialize in any big way soon, but if I had one bedtime fantasy it would clearly be a defused political situation in this area.
Irans economy isnt without its faults, of course, including potential weakness in the banking sector. When inflation was at its worst and the currency was unstable, millions of Iranians looked to protect themselves by putting money in real estate and stocks, leading prices to double last year. A reversal of those trends could spell trouble for people who overextended themselves and the banks that lent to them.
Everything, of course, also depends on the success of U.S.-Iran dtente,an outcome that looks increasingly likely but is far from assured. During a visit on Sunday to the United Arab Emirates, U.S. Secretary of Commerce Penny Pritzker said it was too early for American companies to start thinking about doing business in Iran, echoing the stance of Treasury department officials who have cautioned companies not to rush into the country during the six months of limited sanctions relief, which end this summer.
Nevertheless, the scale of Irans potential is hard to ignore. Nasser Saidi, a Dubai-based economist, recently estimated that an opening of the economy could mean $600 billion to $800 billion in new investment opportunities over the next decade.
No other country is as large or as untapped, Mr. Robertson said.
By The Wall Street Journal
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