US sanctions: A boon for Iranian equity funds?

Leveraging the return of US economic sanctions in August, the top three Iranian equity funds have been displaying stratospheric double-digit yields during the first half of the Iranian year. A performance obtained from tapping export-oriented companies and taking advantage of an extremely profitable exchange rate. MARC ROUSSOT reports.

The second round of US sanctions targeting oil exports has just hit Iran. Its consequences may be dramatic for the Islamic Republic’s sluggish economy characterized by a soaring unemployment rate, high prices and biting inflation recorded at 15.9% over the past 12 months.

Common people, who have been demonstrating since December 2017 against the current state of the economy, among other issues, will be the most impacted by the US’s aggressive policy.

But on the other side of the coin, favorable investment opportunities could emerge from it for the benefit of equity funds which have thrived during the first half of the Iranian year after the reimposition of the first batch of US sanctions.

Damasanj, Yekom Exir Farabi and Kian Equity Fund, Iran’s top three equity funds, recorded stunning yields of 99.35%, 91.59% and 89.96% respectively and the Teheran Stock Exchange equity index (TEDPIX) grew by 66.73% to 160,538.2 points.

Invested in export-oriented companies, using hard currencies for trading, these funds benefited tremendously from the plummeting Iranian rial, which lost 70% of its value against the dollar over the past year, on the back of US President Donald Trump’s harsh strategy.

“Damasanj means thermometer in Farsi, therefore Damasanj shows the temperature of [the] Tehran Stock Exchange. Naturally, when the market goes up, Damasanj goes up as well. We believe we can reach a 130% yield this year,” says Sajad Amiri, the co-founder of Damasanj.

Although the temperature has continued rising on the Teheran Stock Exchange with the TEDPIX reaching an all-time high of 195,480.2 points on the 1st October, boosted by the oil price hike, Mohammadreza Khani, the director of international affairs at Farabi, foresees a yearly return of “only” 40-60%. Designed to bring Iran’s economy to its knees, the second round of US sanctions is targeting refineries and petrochemical industries, the fund’s best-performing segments during the first half of the Iranian year, he explains.

However, President Trump’s administration could miss its target if the SPV established by the EU to circumvent US sanctions truly works, allowing European companies to continue trading with Iran and import its oil in particular.

“If the consequences of the sanctions are contained at the same level as the last two quarters, and if we don’t experience severe market and export disruptions, we expect the positive trend to continue with another 25-40% return to materialize in the next two quarters,” says Farhang Gharagozlu, a fund manager at Kian Capital Investment.

This article first appeared in IFN Volume 15 Issue 45 on the 7th of November 2018

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