Iran: A visit to the final frontier

Oliver Bell

Iran’s historic nuclear deal and the lifting of sanctions should bring the country back into the global community. For investors, it is being heralded as the return of the largest economy to the global system since the breakup of the USSR in 1991. We recently went on a factfinding mission to Iran prior to the lifting of sanctions. It was a real eye-opener and exposed many of our biases as wrong. Iran appeared more like Turkey than Saudi Arabia – Tehran being a very cosmopolitan city with a much more liberal attitude than we expected, with women appearing fully integrated into society.

High educated

Importantly, the country is educated, entrepreneurial and asset rich, but remains cash flow poor because of the sanctions that have been in place since 1979. With those sanctions being lifted, there is much to like as an international investor. Iran is the second-largest economy in the MENA region after Saudi Arabia, with a GDP of $406.3bn in 2014. This is roughly the same size as Thailand.

Real GDP could rise from 1.9% in 2015, to 5.8% in 2016 and 6.7% in 2017. The Tehran Stock Exchange has 540 listed companies on the main bourse, a $120bn market cap and $40bn turnover per day. The index trades at 6x P/E (having been as low as 4-5x) and an average dividend yield of 14%, but with negligible foreign participation.


We believe there is money to be made for first movers coming into the market. The purpose of the trip was to acquaint ourselves with Iran and its idiosyncrasies, which we have done in part, but need more time with companies and officials to become truly comfortable investing. However, interest will only grow because of its reintegration into the global economy, its huge hydrocarbon power and positive demographics. Institutional investors, however, will probably face some challenges in areas of liquidity and corporate governance. Ultimately, with a focus on quality, investment in Iran could prove rewarding, especially given the very low valuation starting point. In addition, with Iran being one of the last great frontier markets left, it could potentially provide one of the final pieces of the investment puzzle.