Over at Business Insider, trader and financial writer Christopher H. Cooper described Iran as “single greatest growth spot in the world.” He writes:
Even if the world wasn’t falling apart and the Tehran Stock Exchange (TSE) hadn’t rocketed 25% in the last month alone, the single greatest growth spot in the world still lies in Iran. Based on my first-hand observations of the daily trading activity over the last two years, I can easily deploy 1 billion USD equivalent without disrupting the public markets or significantly altering the liquidity profile. I also reasonably expect a 150% currency adjusted return in Tehran over the next 24 months…
He continues to argue that with sincere outreach to Iran, mutual profits can be had:
There is a very different culture around investing in Iran that the West needs to prepare for. The typical openness most corporations have for investors is almost non-existent, and an indication of interest to invest isn’t a confirmation of a good value so much as cause for suspicion. Nonetheless, I have found that once mutual trust, respect, and good intentions have been established, nothing is impossible. Those who take the time to live in Iran, learn the language, and truly understand the Iranian mindset are welcomed as peers no matter the color of their passport.
How nice. Unfortunately, like those before who have essentially written the same article (the Financial Times’ Guy Dinmore, for example, on October 15, 2002, called the Tehran Stock Exchange “one of the world’s best performing but most poorly regulated markets,” and once lauded its performance at a conference), Cooper misreads the dynamic at play. Yes, at times it appears the Tehran Stock Exchange does well, although this is not new. In 2010, the Tehran Stock Exchange ranked as the top performing bourse in Europe, Africa, and the Middle East. Between 2008 and 2011, the value of shares listed on the exchange almost tripled, increasing from $39.81 billion to about $108.4 billion, according to an interview with exchange manager Hassan Ghalibaf-Asl on Tehran provincial television. Back in 2012, the Wall Street Journal also noted how, as Iran’s currency depreciated, some investors took refuge in the Tehran Stock Exchange.
The problem with Cooper’s advocacy is essentially his projection: For all he talks about the need to “understand the Iranian mindset,” he misunderstands what the Tehran Stock Exchange is all about. The Exchange was founded in 1967 but Revolutionary leader Ayatollah Ruhollah Khomeini ordered it shuttered in 1979 because he saw stock exchanges as interest-bearing and gambling and, therefore, un-Islamic. President Ali Akbar Hashemi Rafsanjani subsequently revived the exchange as a tool for his privatization efforts. When the Iranian government privatizes state-owned industries, it issues shares through the Exchange. Most of those formerly state-owned enterprises which have been floated on the Exchange are today far from privatized: They are simply purchased by Islamic Revolutionary Guard Corps (IRGC)-owned banks or businesses. In effect, what best explains Tehran Stock Exchange performance is IRGC money laundering. When the IRGC is cash-flush, as it is now with what the Obama administration now acknowledges to be the $100 billion it has or is receiving under the terms of the Joint Comprehensive Plan of Action, then the Exchange booms. When the IRGC is cash-poor, stocks falter. There is a reason for the opacity which Cooper observes.
As for the idea of investing in the Exchange? The Iranian leadership loves naïve investors ‘no matter the color of their passport.’ Hard currency is hard currency, but investors should have no delusions. To invest in companies listed on the Tehran Stock Exchange is, in effect, to risk complicity in terror finance.
