Iran’s Explosive Reaction Respite
The Tehran Stock Exchange added another 5 percent to its rally in December on $250 million record trading volume, mainly from on-line individual investors dabbling both in small company and large-cap listings as P/E ratios headed toward the historic double-digit mark. Since finalization of the interim nuclear for sanctions freeze deal the currency has rebounded 20 percent against the dollar and the GDP growth forecast was hiked to 3 percent, as the new Rouhani government moved ahead with 5 percent privatization offerings in steel, petrochemicals and banking lifting equity market size to $180 billion. Construction and real estate firms have boomed with housing and property shortages and the short-term boost in business and consumer sentiment. The latest budget assumes 20 percent-plus inflation and further rial strengthening to 26,500/dollar, and 40 percent higher revenue from customs, income tax and oil sales. The Geneva action plan with the US and EU allows International Atomic Energy Agency inspections to ensure enrichment suspension in return for the partial release of bank accounts and lifting of commercial boycotts for the car and refining industries. The Obama administration has stressed that existing financial restrictions remain in place as it moves to head off additional pressure from Congress to stiffen them further if the agreement stumbles. The Iranian parliament for its part has threatened to triple the enhancement grade to 60 percent if the West adopts a harsher stance and also warned the Economy Minister that his job was in jeopardy should the currency resume its free-fall. Sanctions easing should increase non-oil exports at over half the $55 billion total to Asia and the Gulf, and may also enable access to the estimated $100 billion isolated in foreign banks. The trade surplus was $40 billion in 2013 according to the IIF, but over 40 percent of petroleum income cannot be repatriated under the UN stranglehold, which also bars global bond investment as attempted prior to the 2008 crisis. As the accord evolves authorities have hinted at possible sukuk placement in the region, as S&P recently predicted another year of 15 percent GCC growth to almost $30 billion with longer tenors and a mix of corporate and sovereign issuance. It estimated shariah-compliant assets worldwide at $1.5 trillion led by Malaysia which has “cemented its position” as a pioneer and innovator.
Egypt, after 95 percent approval of its military-guided constitutional referendum on meager turnout, intends to tap this vein after revising legislation, but conventional aid and loans from Gulf allies has pre-empted Islamic-style resort which may also carry political overtones with the trial of ousted president Morsi now underway in a sealed courtroom. The stock market has been among the few MSCI core universe gainers through February as the pound hovers at 7 to the dollar under central bank protection slowing overseas investor transfer.
