Iran’s Rowhani Rowboat Leaks

The Tehran stock exchange continued its double-digit advance as perceived reformer Rowhani, with a sudden youth and former “green” movement surge from the last contest, secured a 50 percent first presidential ballot victory over Guardian Council-approved rivals who all lamented the economy’s deterioration in public debate. Oil import and investment sanctions were recently buttressed in the US to bar use abroad of the rial, which halved against the dollar before the election, and have contributed to recession with surviving factories at 50 percent capacity on inflation independently judged at 40 percent. College-educated youth unemployment and central bank borrowing to cover the budget deficit have jumped, with limited privatization of state firms geared to insider deals with security forces. Price/earnings ratios are around 5 with petrochemicals the top performer while mining and auto manufacturing have been battered. Cement producers benefited from a 20 percent authorized charge hike which may soon apply for drug makers as well. Rowhani got triple the votes of the runner-up and supporters of withdrawn candidate Aref swung overwhelmingly in his favor as the veteran cleric easily overtook the capital’s mayor who portrayed a technocrat image. He was a nuclear negotiator a decade ago and got his law doctorate in the UK and is an ally of former president Rafsanjani who advocated economic and diplomatic opening during his tenure. The parliament approved the budget before the race projecting a 40 percent drop in petroleum revenue and a second phase of subsidy overhaul which will emphasize direct cash transfers. The chamber of commerce announced that two-thirds of the country’s 6000 manufacturers were headed toward insolvency as small bazaar merchants also close under an additional 30 percent tax. The monetary base is up 30 percent annually on record central bank liquidity injection, and agricultural underinvestment has thrown an estimated third of the population into food insecurity. Labor unions continue to be muzzled although workers have begun to air grievances despite the risk of firing and prison sentences.

Iraqi stocks and bonds in contrast have dimmed after the glow of a big telecom IPO and renewed bombing and sectarian strife following US troop exit.  The Sunni-Shia divide has worsened with the nearby Syrian bloodshed and provincial elections favoring prime minister al-Malaki’s coalition did not foster reconciliation. A new oil delivery pipeline through Jordan is set for completion at mid-decade and the government seeks parallel transit via Saudi Arabia. Headline inflation is around 2 percent as credit feels an anti-money laundering squeeze. Flush Saudi banks are considering a presence but face continued fallout from family conglomerate defaults early in the crisis. The Algosaibi Group involved over $5 billion in exposure and court deliberations on alleged fraud in multiple jurisdictions. It has just presented another restructuring offer intended to tap fresh money as recent concentration rules will prod lending to smaller companies despite their establishment rejection to date.