Iran’s Negotiation Pause Reflection
The Tehran Stock Exchange was disappointed with delay in foreign investor opening until at least next July when nuclear weapon negotiations with the West, Russia and China face another deadline after anti-enrichment for sanctions lifting talks were extended. The regime will continue to receive $700 million in monthly easing on oil sales and frozen bank accounts, and President Rouhani expressed optimism an accord would be reached as he tries to restore economic growth and combat inflation which has moderated to 20 percent and relieve youth unemployment estimated at 25 percent. The currency weakened in the parallel market with postponement of the potential investor and visitor flood although delegations will still arrive to probe commodity, consumer and financial market offerings. The President is again expected to participate in the Davos World Economic Forum in January and press his intention to cut subsidies and expand the private sector. Gulf buyers were active in initial state company stake divestitures under the previous government but efforts have since stalled as the Revolutionary Guard and religious foundations continue to control major listings. Banks operate under a no-interest Islamic fixed return and commercial competition has been stifled with new applicant license delays and the absence of bad loan resolution procedures. With declining oil prices and OPEC infighting energy focus has shifted to gas reserves and autos and mining are two other priority sectors for progressive international engagement pending further boycott removal. Europe and Asia are poised to return faster than the US, where stiff Treasury Department prohibitions remain in place that Republicans now in charge of the Senate are due to underscore and try to strengthen. Iran’s budget mix has been further roiled by the rising cost of Islamic State fighting alongside coalition airstrikes although it is still allied with Syria’s Assad. The toll has already depleted neighboring Iraq’s coffers with military and refugee spending forcing austerity including civil servant wage and hiring freezes. The economy will shrink 3 percent according to the IMF and employee in the Kurdish enclave have not been paid for months as Baghdad seeks to strike a fresh provincial relationship as ISIS soldiers surround key cities. Bond yields have tipped toward 7 percent as 2015 envisions a fiscal deficit and continued coalition fragility despite the longtime prime minister’s replacement.
Israeli stocks stayed down with the prolonged dialogue and Palestinian street attacks in Jerusalem and suspension of the Leviathan offshore gas project on regulatory and Jordan bickering. The economy and currency are flat as the Tel Aviv exchange aims to lure high-tech startups shunned by venture capital caution. Egyptian energy shipments have revived after terrorist interruption as stocks up 35 percent continue to top the core universe. The pound slipped to 7.5 to the dollar on Qatar loan repayment as the central bank vowed to end the black market. Foreign buyers have tiptoed into local bonds with double-digit yield as the Finance Minister reopened the door to IMF assistance after pre-military rule rejection.
