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Speaker 1: Hello, and welcome to another episode of the All Thoughts Podcast.

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Speaker 1: I'm Tracy Alloway and I'm Joe.

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Speaker 2: Why isn't that Joe?

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Speaker 1: Have you looked at the Terran stock exchange recently?

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Speaker 2: I have not. Let me look that up right now.

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Speaker 3: I know it's going to happen.

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Speaker 2: Nope, I can't find any data for it.

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Speaker 1: Yeah, we have actually recorded.

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Speaker 2: Do you know what happens when you look on the Bloomberg?

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Speaker 1: Do you get a warning?

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Speaker 3: How about you do?

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Speaker 2: Yeah? So if you look, if you're on the Bloomberg

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Speaker 2: terminal and you want to see what's happening on the

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Speaker 2: Tehran Stock Exchange, you actually get a red bar and

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Speaker 2: it said sanctions may apply to this instrument, and you

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Speaker 2: can't get the data.

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Speaker 1: Yeah, that's exactly right. And we have actually done an

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Speaker 1: episode on Iranian stocks before. And one of the reasons

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Speaker 1: this particular market is interesting is because it has to

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Speaker 1: be the most unfamiliar equity market out there, I think

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Speaker 1: for the vast majority of investors. Because of sanctions, you

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Speaker 1: can't access data on it. You're not going to see

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Speaker 1: a lot of news stories on what's going on with

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Speaker 1: Iranian stocks. It's just really hard to get a sense

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Speaker 1: at any single point in time of what this market

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Speaker 1: is doing, what it's comprised of, and basically any information

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Speaker 1: on it at all.

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Speaker 2: That's right, It's very strange it exists. There are plenty

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Speaker 2: of stocks on it, you know. It's always sort of interesting,

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Speaker 2: I guess, to be reminded that stock markets exist in

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Speaker 2: all these far flowing locations. Iran, of course, is a

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Speaker 2: relatively big middle income country, but because of the sanctions,

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Speaker 2: it's just so unplugged into the Western financial system. You

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Speaker 2: never it just doesn't even come up in any conversation.

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Speaker 2: I mean, you hear much more about say the Saudi

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Speaker 2: market or something like that.

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Speaker 1: Absolutely, and I'm almost kind of surprised when I read

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Speaker 1: the numbers behind how big the range economy actually is,

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Speaker 1: because again, it's just one that people don't really talk

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Speaker 1: about that much, except maybe in the context of oil exports.

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Speaker 1: But anyway, as I mentioned, we did an episode on

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Speaker 1: the Iranian stock market a couple years ago, and obviously

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Speaker 1: Iran is back in the news. There's always been a

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Speaker 1: degree of geopolitical risk in this market for obvious reasons.

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Speaker 1: We already mentioned sanctions, but geopolitical risk has just kicked

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Speaker 1: into high gear given the conflict between Israel and Hamas,

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Speaker 1: and so I thought it might be interesting to bring

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Speaker 1: back our guest and just try to take a look

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Speaker 1: at what's happening in this extremely unfamiliar and sort of

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Speaker 1: opaque market.

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Speaker 2: That's right, and obviously right prior to the start of

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Speaker 2: the war, you know, obviously there had been talk and

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Speaker 2: we talked about this with Gregory brew Actually there had

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Speaker 2: been this easing not of the sanctions, but of it seemed,

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Speaker 2: of the enforcement of the sanctions, and so a lot

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Speaker 2: of Iranian oil has been flowing out of the country

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Speaker 2: despite the sanctions, and of course there was that money

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Speaker 2: that the Biden administration had unfrozen and then since refrozen,

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Speaker 2: and so there had been some macro moves happening around.

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Speaker 2: Whatever trajectory Iran may have been on is probably on

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Speaker 2: something different now.

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Speaker 1: Absolutely, so we are going to be speaking with our

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Speaker 1: previous guest. It's match A Voytol. He is an investor

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Speaker 1: in Iranian stocks. In fact, I think he's the only

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Speaker 1: or he runs, the only foreign institutional investor that is

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Speaker 1: actually investing in Iran. So again, not a very crowded

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Speaker 1: market and certainly an unusual one. Matche thank you so

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Speaker 1: much for coming back on all thoughts.

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Speaker 4: Hi, thank you for having me.

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Speaker 1: So maybe just to begin with, you could sort of

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Speaker 1: give us a reminder of what it is that you

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Speaker 1: and your fund actually do for listeners who weren't listening

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Speaker 1: to all blots back in twenty What's what's your mandate?

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Speaker 4: Right? So really like a like a brief description of

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Speaker 4: what we're doing and why we are doing this. So

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Speaker 4: we run an equity fund. It's a proper mutual fund

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Speaker 4: registered in one of the European jurisdictions, and our mandate

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Speaker 4: is to buy stocks listed on the Tehran Stock Exchange.

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Speaker 4: So Terran Stock Exchange is the biggest stock market that

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Speaker 4: no one has ever heard of, and it's a proper market.

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Speaker 4: It has around six hundred companies listed. More than fifty

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Speaker 4: different industries are present on the market, so it's not

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Speaker 4: a proxy on oil prices. It's around two hundred and

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Speaker 4: fifty billion dollar market cup and this decent liquidity. So

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Speaker 4: if Iran was properly integrated into you know, global financial

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Speaker 4: markets with no sanctions on it, you know, Iran would

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Speaker 4: be definitely one of the members in MSCI Emerging Markets

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Speaker 4: in this is or would be the biggest member of

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Speaker 4: MSA frontier markets. And this is but because of all

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Speaker 4: those difficulties that you mentioned related to sanctions mainly and

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Speaker 4: capital controls, there are no foreign investors there. We got

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Speaker 4: interested back in twenty sixteen when it became legal to

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Speaker 4: start doing anything with your run. Well, as long as

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Speaker 4: you're not an American investor. Americans still cannot touch the market,

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Speaker 4: but it became legal for everyone else pretty much. But still,

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Speaker 4: you know, half of our work is doing due diligence

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Speaker 4: and actually you know, working on operations to to make

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Speaker 4: it possible to investor. But you know, what's what's interesting,

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Speaker 4: why why we are doing this is that you know,

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Speaker 4: you mentioned that it's that that you were surprised how

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Speaker 4: big Iran's economy is, and I would say that that, no,

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Speaker 4: it's actually very small comparing to how big it could

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Speaker 4: get because he ran. You know, it's around ninety million people,

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Speaker 4: the largest combined oil and gas reserves in the world,

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Speaker 4: and they properly developed and diversified economy well thanks to

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Speaker 4: decades of sanctions, they didn't have a choice. They had to,

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Speaker 4: you know, develop all different parts of the economy. And

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Speaker 4: all this in terms of GDP is around well, depending

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Speaker 4: how you calculated, but it's around two hundred billion dollars. Now,

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Speaker 4: when you look at Turkey, which is a similar size

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Speaker 4: of the country in terms of population and geographical size,

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Speaker 4: but no natural resources, Turkey is around eight hundred nine

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Speaker 4: hundred billion dollars. If you look at Saudi Arabia, which

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Speaker 4: has no other pretty much no other sectors except for

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Speaker 4: you know, oil and some petrochemicals, the GDP over there

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Speaker 4: is around one trillion dollars. So in some you know,

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Speaker 4: super optimistic, very very positive scenario, if everything went well

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Speaker 4: for Iran, Iran could become basically the combination of the two,

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Speaker 4: which is, you know, anywhere one point eight to two

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Speaker 4: trillion dollars. So the upside for the economy is you know,

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Speaker 4: eight times from where it is right now. So this

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Speaker 4: is the potential, This is the optionality that is in

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Speaker 4: the market. And on top of that, once the country

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Speaker 4: starts to open up, obviously there is a long list

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Speaker 4: of things that would have to you know, come in place.

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Speaker 4: Then we expect to see a lot of capital flowing

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Speaker 4: into the market. And right now it's only domestic capital

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Speaker 4: and us which means that because there is not enough capital,

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Speaker 4: the you know, access local assets are valued at very

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Speaker 4: low levels. So we what we are seeing in the

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Speaker 4: market is, you know, we're buying stocks four to five

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Speaker 4: times forward net earnings. Those earnings are growing, they are

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Speaker 4: paying dividends. The average or the medium dividend field you

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Speaker 4: know for the top one hundred companies is probably close

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Speaker 4: to fifteen percent, so you know, strong double digit dividend fields.

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Speaker 4: Valuations at such levels that you know, they cannot really

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Speaker 4: fall further as long as those earnings are growing. So

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Speaker 4: investment risks are pretty small, pretty limited. You have different

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Speaker 4: sorts of risks. You have geopolitics exactly as you mentioned.

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Speaker 4: I mean, you know, those those equities basically are priced

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Speaker 4: for war, and obviously there is a reason. There might

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Speaker 4: be a reason for that, because it's because it's the

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Speaker 4: Middle East. And it's amazing how the how the narrative

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Speaker 4: you know, the region reminded everyone that you know that

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Speaker 4: the situation and the and the perception of the region

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Speaker 4: can can make a U turn overnight, because a month

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Speaker 4: ago it was not only what you mentioned in the

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Speaker 4: introduction that you know, there was some sort of arrangement

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Speaker 4: between Iran and the US which led to the prisoner exchange,

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Speaker 4: which which was very important because historically prisoner exchange was

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Speaker 4: usually the first step to something bigger. And then on

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Speaker 4: top of that, you know, Iran is selling a lot

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Speaker 4: of oil, so obviously sanctions are probably you know, not

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Speaker 4: enforced very very strictly and so on. But the bigger

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Speaker 4: story a month ago was in the whole Middle East

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Speaker 4: where Iran basically signed a you know, you can call

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Speaker 4: it the peace treaty with Saudi Arabia after many years

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Speaker 4: of not having the promoting relations. Then what followed were

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Speaker 4: you know, discussions and restoration of diplomatic ties with between

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Speaker 4: Iran and you know, Age of Bukrain, all Saudi Saudi allies.

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Speaker 2: And so you know, obviously want to talk about the

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Speaker 2: the trajectory of the country. But to back up for

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Speaker 2: a moment, obviously the country, as we said in the intro,

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Speaker 2: the country's entire financial system extremely cut off to the

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Speaker 2: point that you can't access the data. Can you talk

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Speaker 2: about how just remind us for those who haven't listened

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Speaker 2: to the episode, which I think was late twenty nineteen

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Speaker 2: or early twenty twenty, the mechanics of how you access

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Speaker 2: the stock exchange from where you are.

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Speaker 4: Okay, Yeah, so look, you have to access te Ran

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Speaker 4: Stock Exchange website, which actually sometimes you're not able to

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Speaker 4: access it from IPS from outside of Iran. We subscribe

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Speaker 4: to local services price services like you know Mini Bloomberg's

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Speaker 4: in Iran that offer a very decent the way of

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Speaker 4: you know, going through the data so you can not

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Speaker 4: only you cannot not only follow the prices stock prices,

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Speaker 4: but also it's a good database in a nice format

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Speaker 4: of historical earnings, quarterly earnings, monthly sales data, corporated announcements,

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Speaker 4: charts or different types of charts like price charts, fundamental charts,

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Speaker 4: historical valuations and so on and so forth. So this is

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Speaker 4: all available in Iran. You have to you know, find

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Speaker 4: those you know, those suppliers, subscribe to those services. It's

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Speaker 4: much much easier if you have people on the ground.

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Speaker 4: So we had an office with free full time analysts

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Speaker 4: who you know, who help with not only you know, research,

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Speaker 4: but also getting things done because you know, some things

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Speaker 4: you actually have to do manually. There. For example, companies

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Speaker 4: paid very high dividends. Dividend yieldy is very high in

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Speaker 4: the market, but they try not to pay for as

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Speaker 4: long as possible, right because interest rates are high, so

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Speaker 4: they try to get this you know, interest for as

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Speaker 4: long as possible, so you actually have to chase them

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Speaker 4: to pay it, right, you call them, you send faxes, right,

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Speaker 4: stuff like that. So it's you need someone on the

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Speaker 4: ground to do it on your behalf.

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Speaker 1: Okay, another really basic question on that note, and again

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Speaker 1: we are unable to access any sort of data, but

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Speaker 1: what has been going on with Iranian stocks recently?

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Speaker 4: Right, so on seventh of October, I believe that it

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Speaker 4: was the case for the whole region that they is,

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Speaker 4: local currency is sold off and local stock stock markets

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Speaker 4: went down. Obviously, what happened was that over the so

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Speaker 4: initially everything went down. For the first three weeks, the index,

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Speaker 4: local equity index measured in dollar terms was going down,

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Speaker 4: with the lowest point around ten percent in terms of

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Speaker 4: you know, the correction. Since then it started bouncing back.

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Speaker 4: In local currency terms, the equity indexes actually at the

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Speaker 4: level from seventh October, so it made up for all

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Speaker 4: the losses. The currency is still down, so from a

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Speaker 4: foreign investor who is measuring you know, the P and

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Speaker 4: L in dollar terms, you are still roughly three percent down,

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Speaker 4: so it's actually not that bad given you know, the circumstances.

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Speaker 4: Given that the risk for local markets and especially Iran,

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Speaker 4: which is involved in everything that is going on. You know,

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Speaker 4: the worst case scenario is that potentially there is a

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Speaker 4: military conflict war and I don't know Iranian refineries or

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Speaker 4: petro chemical plants or military targets and so on. So

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Speaker 4: there was and people were quite scared. We could see this.

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Speaker 4: Some of the sectors went down in the meantime for

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Speaker 4: by about twenty percent, bounced back since then, but mainly

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Speaker 4: there was happening due to very low liquidity. What was

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Speaker 4: the biggest impact actually we could see was on liquidity.

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Speaker 4: Normal liquidity is around one hundred and fifty million dollars

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Speaker 4: per day, and it went to as low as thirty

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Speaker 4: forty million. So what was going down the most is

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Speaker 4: actually the most ill liquid stocks or ill liquid industries.

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Speaker 4: So when I when I look at sectors that really

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Speaker 4: were hit the most, it's textile producers, confectioneries, you know,

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Speaker 4: so think they're not related to war or geopolitics at all,

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Speaker 4: but they are basically in liquid. And one thing important

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Speaker 4: to remember, so the stock market is driven by retail investors.

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Speaker 4: Ninety percent of daily trading is done by retail, so

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Speaker 4: you know it's very emotional, it's very short term momentum,

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Speaker 4: I would say, so they are selling or buying depending

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Speaker 4: on the recent price action, so they were driving the

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Speaker 4: share price direction basically.

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Speaker 1: So when you say performance hasn't been that bad, I'm

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Speaker 1: kind of curious what the basis of comparison is, because

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Speaker 1: you know, in a frontier market or an emerging market,

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Speaker 1: if you're looking at you know, Kuwaiti stocks or something

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Speaker 1: like that, I imagine you would look at the wider benchmark

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Speaker 1: or other members of like the MSCI Emerging Market Index

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Speaker 1: or something like that, and that would help you gauge

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Speaker 1: relative performance. But for something like Iran, because it's so unusual,

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Speaker 1: it feels difficult to benchmark its performance in one way

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Speaker 1: or another.

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Speaker 4: Yes, and the thing that is most volatile in Iran

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Speaker 4: is the currency. So the stock market is much less

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Speaker 4: volatile in the local currency than when measured in dollar terms.

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Speaker 4: The local stock market is actually well hedged against the

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Speaker 4: currency depreciations because it's the majority of the biggest companies

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Speaker 4: are actually exporters. They benefit from currency depreciation, but share

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Speaker 4: prices react with a lack So for a for a

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Speaker 4: foreign investor, you initially usually when something is happening. You

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Speaker 4: usually get hit see a drawdown due to a big

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Speaker 4: currency volatile currency move, and then the stock market usually

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Speaker 4: rallies because you know, people realize that exporters will start

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Speaker 4: showing better earnings and when share price eventually will always

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Speaker 4: you know, follow EPs and the lag is is because

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Speaker 4: the market is driven by retail. So you know, in

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Speaker 4: the US everything would be you know, any currency move

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Speaker 4: would be priced you know, real time into share prices

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Speaker 4: of stock that are sensitive to currency moves, right, and

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Speaker 4: in Iran sometimes takes you know a month for two months, right,

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Speaker 4: So it's actually a big opportunity that you have time

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Speaker 4: to to to position yourself correctly. But also what you

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Speaker 4: can compare it with is okay, there are two two

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Speaker 4: two interesting facts about the performance of the market. So,

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Speaker 4: first of all, when I looked at the last fifteen

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Speaker 4: years and big geopolitical events for example, like previous conflicts

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Speaker 4: with Hamas in Gaza, or there was a situation between

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Speaker 4: Iran and the US where people were saying that this

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Speaker 4: was close to a military conflict when Iranian General Solimani

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Speaker 4: was killed and then Iran retaliated by firing some missiles

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Speaker 4: at a American base in Iraq. When I looked at

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Speaker 4: the performance of the market, it never went down more

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Speaker 4: than ten percent in dollar terms. Actually, so what happened

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Speaker 4: right now, I think the bottom was around almost eleven percent,

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Speaker 4: was pretty much in line with those historical geopolitical events

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Speaker 4: that were also presented a big risk for the local market.

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Speaker 4: But another way of looking at the Iranian market is

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Speaker 4: the historical performance, and this is very interesting because if

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Speaker 4: you look at the performance of the benchmark equity index

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Speaker 4: it's called ted Picks Index, total total return for the

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Speaker 4: last fifteen years, so since the inception in twenty eighteen,

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Speaker 4: the annualized return in dollars is around eleven percent, which

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Speaker 4: I think is quite amazing because it's pretty much the

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Speaker 4: same as for S and P five hundred, maybe maybe

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Speaker 4: twelve percent for S five hundred, So it's the same ballpark,

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Speaker 4: and the environment was completely different, I mean, couldn't be

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Speaker 4: more different, because over that over the last fifteen years

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Speaker 4: in the US, you had you know, technology revolution, those

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Speaker 4: mega apps you know, appearing on the market, interest rates

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Speaker 4: you know initially going to zero, the top of the cycle,

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Speaker 4: you know, margins operating margins on top of them, you know,

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Speaker 4: top of the top of the cycle basically evaluations. And

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Speaker 4: in Iran you had two episodes of currency depreciation of

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Speaker 4: more than seventy five percent, you had some some crazy presidents,

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Speaker 4: you had US sanctions un sanctions, and still at the

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Speaker 4: end of the day, when you measure the performance, compare

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Speaker 4: the performance over the last fifteen years, it's pretty much

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Speaker 4: the same, obviously with much bigger volatility, because you know,

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Speaker 4: the in Iran the volatility was probably around forty percent

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Speaker 4: or something. But that shows you that, you know, when

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Speaker 4: you're buying assets had very very low valuations, and I

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Speaker 4: say talking about you know, there's four times net earnings,

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Speaker 4: let's say, and the economy and those companies are actually

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Speaker 4: naturally hatched against the currency volatility or big depreciation. Then

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Speaker 4: you know, even in those countries where things are going

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Speaker 4: really bad, you can still make money. But what is

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Speaker 4: more important is that if in bed times you were

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Speaker 4: still averaging, you know, eleven percent per year, you know,

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Speaker 4: just think what you can make, what you can expect

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Speaker 4: when when you know things finally go the right way

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Speaker 4: for Iran and the country opens up and so on,

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Speaker 4: you know, that's that's that's the potential that we are

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Speaker 4: obviously hoping for her.

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Speaker 2: Talk to us about perhaps the signs of a thaw

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Speaker 2: in these several months leading up to October seventh, between

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Speaker 2: the prisoner exchange, the expanded flow of oil from the

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Speaker 2: perception of a lower enforcement of the sanctions. Was that

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Speaker 2: showing up in the in the market in a clear way,

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Speaker 2: and just to sort of emphasize that further, would there

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Speaker 2: way to see that in the sectoral breakdown? So for example,

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Speaker 2: if there is more oil flowing out of Iran or

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Speaker 2: if there was, was that redounding to the benefit of

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Speaker 2: oil related listed Iranian stocks?

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Speaker 1: Good question.

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Speaker 4: So the question about oil, the answer is no, because

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Speaker 4: oil is not listed. The only oil related stock that

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Speaker 4: you can find our local oil refineries that you know,

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Speaker 4: produce you know.

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Speaker 2: So they don't they don't benefit from further export.

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Speaker 4: They are correlated to cruck spreads because they're domestic formula

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Speaker 4: for the price at which they are buying oil from

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Speaker 4: the government is a function of regional cruckspreads. So nothing

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Speaker 4: nothing to do with it. But there was one instrument

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Speaker 4: that showed perfectly higher oil sales is the currency. The

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Speaker 4: currency which I've been talking about that it's so volatile

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Speaker 4: this year, it's been it's been super stable, around five

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Speaker 4: hundred thousand real per dollar, and it's been going, Oh,

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Speaker 4: I don't know what's the volatility, volatility, having checked it,

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Speaker 4: but it's you know, comparing to the previous couple of years,

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Speaker 4: like nothing is going on with the currency, and this

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Speaker 4: is and this is this is a clear signal that

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Speaker 4: there are enough reserves that you know, Central Bank of

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Speaker 4: Iran is accumulating that you know, the pressure is gone.

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Speaker 4: I mean, it's you know, it's still very complicated because

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Speaker 4: you know, bank transfers don't really work or at least

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Speaker 4: not easy with with Iran. So whenever Iran and exporters

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Speaker 4: are selling something, whether this is oil or some more

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Speaker 4: formal exports and more transparent exports, very often they don't

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Speaker 4: get the money back to Iran. It's it's it's somewhere there.

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Speaker 4: They get paid to I don't know, accounts in China

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Speaker 4: or whatever, and it's and it's lying on those accounts

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Speaker 4: and then money from those accounts can be used to

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Speaker 4: find and imports, but it's not really coming back to Iran.

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Speaker 4: So it's helping because Iran has probably needs to spend

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Speaker 4: roughly twenty billion dollars per year to finance some essential imports, right,

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Speaker 4: and this is and this is this is like the

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Speaker 4: minimum amount. If this is missing, then well Iran will

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Speaker 4: have to buy dollars at any price. And this is

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Speaker 4: and this is when big depreciations happen, right, because they

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Speaker 4: need to buy some food, some some pharmaceuticals and so on,

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Speaker 4: so they will buy that any price. So when this

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Speaker 4: is covered, then on top of that you have budget deficit.

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Speaker 4: But this is again maybe ten, maybe fifteen billion billion dollars.

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Speaker 4: So altogether, if Iran manages to get thirty to forty

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Speaker 4: billion dollars per year from oil sales, things are pretty

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Speaker 4: much sorted in terms of steadility, in terms of financing imports,

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Speaker 4: in terms of you know, budget deficit and so one.

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Speaker 4: In normal circumstances, you know, countries opened well integrated with

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Speaker 4: the rest of the world and so on, they will

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Speaker 4: see every month inflow of you know, several billion dollars

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Speaker 4: that will put pressure actually on the on the appreciation

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Speaker 4: of the Iranan currency, of the Iranan reality. So yeah,

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Speaker 4: so that's that's that's important. So you could see this

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Speaker 4: change the last couple of quarters exactly in the exchange rate,

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Speaker 4: and it's and it's astonishing, how you know, how volatility

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Speaker 4: went down on the effects.

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Speaker 1: So I take the point about the market itself being

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Speaker 1: influenced by currency movements and things like that.

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Speaker 3: But you already.

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Speaker 1: Described how the players in Iranian stocks are mostly retail investors.

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Speaker 1: I'm going to assume mostly domestic retail investors too, but

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Speaker 1: you can correct me if I'm wrong. Can you maybe

387
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Speaker 1: give us a little bit more color about what drives

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Speaker 1: retail sentiment around Iran and inflows, because I imagine and correct

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Speaker 1: me if I'm wrong, but like to me, it must

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Speaker 1: be kind of a macro story, but maybe people get

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Speaker 1: excited about individual stocks or the prospects for individual companies,

392
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Speaker 1: But just give us a little bit more of a

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Speaker 1: sense of what drives that sentiment.

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Speaker 4: Yes, so it's I think pretty pretty easy. So it's

395
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Speaker 4: the dollar, so the exchange rate of the dollar. It's

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Speaker 4: the momentum. So if stop socialing momentum, then they start

397
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Speaker 4: chasing momentum. And interest rates local interest rates, so maybe

398
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Speaker 4: not central bank interest rates, but you know, whatever, whatever

399
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Speaker 4: the deposit interest rate is. If there are several asset

400
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Speaker 4: classes in Iran for retail investors, so real estate is

401
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Speaker 4: the big one, the biggest one, but it's a you know,

402
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Speaker 4: high ticket item, so not everyone can trade in and

403
00:25:52,760 --> 00:25:58,280
Speaker 4: out of apartments. It's it's a well understood asset class

404
00:25:58,760 --> 00:26:02,240
Speaker 4: as everywhere. Is why it's it's it's a bit you know,

405
00:26:02,400 --> 00:26:06,240
Speaker 4: less interesting for us. So if Uranus have any spare cash,

406
00:26:06,320 --> 00:26:10,399
Speaker 4: they will buy real estate. From what I heard, thirty

407
00:26:10,440 --> 00:26:15,200
Speaker 4: percent of apartments in Tehran are actually empty because they

408
00:26:15,240 --> 00:26:18,280
Speaker 4: are basically used to as a store of value, just

409
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Speaker 4: to park somewhere, you know, assets savings, and they're not

410
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Speaker 4: even rented out, they're just empty. And also just bear

411
00:26:27,240 --> 00:26:31,639
Speaker 4: in mind that in Tehran, in the best places, best

412
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Speaker 4: neighborhoods of Tehran, prices are quite expensive. So in the

413
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Speaker 4: north of Tehran, if you want to buy an apartment,

414
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Speaker 4: you have to pay around ten thousand dollars per squaremeter,

415
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Speaker 4: so you know, a hundred scarameter of apartment, I don't know,

416
00:26:47,480 --> 00:26:51,359
Speaker 4: three bedrooms will cost you, you know, a million dollars

417
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Speaker 4: or something. Right in Iran, which which is which is

418
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Speaker 4: a poor country, So this is real estate. Real estate

419
00:26:58,640 --> 00:27:02,400
Speaker 4: is number one asset class. A very important class are

420
00:27:02,520 --> 00:27:08,160
Speaker 4: used cars. So people trade use cars because they they

421
00:27:08,680 --> 00:27:13,080
Speaker 4: they are again a hedge against inflation, against the currency

422
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Speaker 4: depreciation because carrent manufacturers will always adjust prices based on inflation.

423
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Speaker 4: Some of them have to be some of the components

424
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Speaker 4: have to be imported, which is not easy. So you know,

425
00:27:26,320 --> 00:27:30,119
Speaker 4: they produce more than one million cars, are actually closer

426
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Speaker 4: probably to to one point five million cars per year,

427
00:27:32,720 --> 00:27:35,200
Speaker 4: but this is not enough, so the demand is much higher.

428
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Speaker 4: So they're trading used cars and their platforms that help

429
00:27:39,880 --> 00:27:41,840
Speaker 4: you trade use cars. It's a it's a it's a

430
00:27:41,840 --> 00:27:45,440
Speaker 4: proper asset class. And yes, and every iranium is actually

431
00:27:46,119 --> 00:27:48,880
Speaker 4: a currency trader because because you know the currency has

432
00:27:48,880 --> 00:27:52,359
Speaker 4: been so volatile historically that it's very important that you

433
00:27:52,520 --> 00:27:55,760
Speaker 4: know what's happening to the to the dollar right or

434
00:27:56,320 --> 00:27:59,000
Speaker 4: to the local currency you know against the dollar. So

435
00:27:59,080 --> 00:28:04,280
Speaker 4: everyone is tracking, you know, the exchange rates. And it's

436
00:28:04,280 --> 00:28:07,119
Speaker 4: not easy to buy and sell dollars. There are quotas

437
00:28:07,200 --> 00:28:11,920
Speaker 4: for you know, individual Uranians due to capital controls. So

438
00:28:11,920 --> 00:28:15,639
Speaker 4: that's why instead of buying dollars or to buy or

439
00:28:15,680 --> 00:28:19,119
Speaker 4: to get a bigger position, they go to those proxy

440
00:28:19,160 --> 00:28:23,359
Speaker 4: asset classes like used cars or of real estate and

441
00:28:23,720 --> 00:28:27,280
Speaker 4: also interest rates so you can buy sell treasure rebels,

442
00:28:27,320 --> 00:28:32,240
Speaker 4: treasury reviews up to you know, two years maturity. They

443
00:28:32,640 --> 00:28:39,640
Speaker 4: they pay around twenty five percent. YouTube maturity may be

444
00:28:39,760 --> 00:28:43,200
Speaker 4: a bit more right now. So, so interest rates are high.

445
00:28:44,120 --> 00:28:47,320
Speaker 4: And that's another thing. Look when you when you when

446
00:28:47,320 --> 00:28:51,240
Speaker 4: you look at Iran, there is not enough capital there.

447
00:28:51,280 --> 00:28:55,680
Speaker 4: There's basically not enough money, not enough credit doesn't exist.

448
00:28:55,760 --> 00:28:58,680
Speaker 4: I mean you cannot get a mortgage at you know,

449
00:28:58,720 --> 00:29:01,800
Speaker 4: twenty five percent, right, I mean you cannot finance anything

450
00:29:02,040 --> 00:29:05,400
Speaker 4: at twenty five percent. And because of very volatile metro,

451
00:29:06,120 --> 00:29:10,120
Speaker 4: people also tend to you know, postpone investment decisions, whether

452
00:29:10,360 --> 00:29:14,840
Speaker 4: these are individuals or more importantly companies. Right, everyone is

453
00:29:14,880 --> 00:29:17,560
Speaker 4: looking like six months ahead, maybe twelve months ahead, right,

454
00:29:17,600 --> 00:29:21,240
Speaker 4: and managing managing a crisis, because there is always some

455
00:29:21,320 --> 00:29:23,800
Speaker 4: sort of crisis. Right, So when you think about it,

456
00:29:24,200 --> 00:29:28,080
Speaker 4: for example, I don't know, every company is running big

457
00:29:28,280 --> 00:29:31,920
Speaker 4: inventories just in case, just so that they have enough

458
00:29:32,560 --> 00:29:35,960
Speaker 4: you know, material to manufacture their products. So they are

459
00:29:35,960 --> 00:29:39,920
Speaker 4: not optimized organized in this very efficient, you know leaning

460
00:29:40,000 --> 00:29:44,840
Speaker 4: way they are. They are organized, you know, just to survive,

461
00:29:44,920 --> 00:29:52,120
Speaker 4: survive basically you know, war conflicte, currency depreciation, sanctions, trade disruptions.

462
00:29:51,560 --> 00:29:52,760
Speaker 3: Whatever, right, right, matcha.

463
00:29:52,880 --> 00:29:55,000
Speaker 1: This is exactly what I wanted to ask you, because

464
00:29:55,000 --> 00:29:58,640
Speaker 1: when you mentioned, you know, people investing in real estate

465
00:29:58,760 --> 00:30:02,080
Speaker 1: as a speculative pl and the idea of a certain

466
00:30:02,080 --> 00:30:06,160
Speaker 1: proportion of apartments standing empty in Iran. The example that

467
00:30:06,240 --> 00:30:10,640
Speaker 1: immediately spread the mind was China. And in China there's

468
00:30:10,680 --> 00:30:13,720
Speaker 1: a lot of money that's sort of trapped and recirculating

469
00:30:13,840 --> 00:30:16,040
Speaker 1: in the economy. I used to call it China's Great

470
00:30:16,080 --> 00:30:20,680
Speaker 1: Ball of Money because of capital controls, and I imagine

471
00:30:21,040 --> 00:30:24,400
Speaker 1: maybe there's a similar issue in Iran where there's not

472
00:30:24,560 --> 00:30:28,720
Speaker 1: enough capital but there's a lot of domestic savings that

473
00:30:28,760 --> 00:30:33,000
Speaker 1: are sort of are unable to get outside of the

474
00:30:33,040 --> 00:30:35,520
Speaker 1: Iranian economy. Is that the right way to think of it?

475
00:30:35,880 --> 00:30:37,920
Speaker 4: So my understanding is that it used to be the

476
00:30:38,000 --> 00:30:42,160
Speaker 4: case that Iran, when you looked at household savings was

477
00:30:43,160 --> 00:30:44,960
Speaker 4: you know, top of the list when you look at

478
00:30:45,120 --> 00:30:49,760
Speaker 4: emerging markets at least in like you know, purchasing power

479
00:30:50,280 --> 00:30:53,880
Speaker 4: parity way of looking at this. However, last couple of

480
00:30:53,960 --> 00:30:57,480
Speaker 4: years have been really tough for your dance due to sanctions.

481
00:30:57,800 --> 00:31:02,520
Speaker 4: So when sanctions were ranged in twenty eighteen, they haven't

482
00:31:02,640 --> 00:31:07,600
Speaker 4: heard manufacturing, they haven't heard exports companies that much. To

483
00:31:07,680 --> 00:31:09,600
Speaker 4: be honest, I mean, because you know, people find the

484
00:31:09,600 --> 00:31:13,440
Speaker 4: way I mean companies that exports in the region, they

485
00:31:13,440 --> 00:31:16,400
Speaker 4: are not really affected by sanctions, big exporters that used

486
00:31:16,400 --> 00:31:19,720
Speaker 4: to send you know, products to Japan and so one, yes,

487
00:31:19,800 --> 00:31:24,400
Speaker 4: they were affected, but they found other roots and manufacturers.

488
00:31:24,560 --> 00:31:27,280
Speaker 4: You know, sanctions cost one thing. I mean, sanctions caused

489
00:31:28,320 --> 00:31:32,640
Speaker 4: the currency volatility, so the big depreciations of real and

490
00:31:33,440 --> 00:31:39,840
Speaker 4: manufacturers who have costs in real but they either sell

491
00:31:40,200 --> 00:31:45,000
Speaker 4: in heart currency or at prices linked to some regional

492
00:31:45,040 --> 00:31:49,160
Speaker 4: benchmarks that are in heart currency, their margins actually expanded. Look,

493
00:31:50,200 --> 00:31:53,479
Speaker 4: it's an interesting thing that the highest earnings growth that

494
00:31:53,520 --> 00:31:56,160
Speaker 4: we've seen over the last couple of years was one

495
00:31:56,240 --> 00:32:00,240
Speaker 4: year after the twenty eighteen sanctions. This is crazy because

496
00:32:00,280 --> 00:32:03,160
Speaker 4: this is you know, not not as intended I would assume, right,

497
00:32:03,400 --> 00:32:06,920
Speaker 4: and and who got hurt by sanctions, Well, households because

498
00:32:06,920 --> 00:32:09,479
Speaker 4: they are price takers. So when the inflation shot up

499
00:32:09,560 --> 00:32:13,880
Speaker 4: because of the currency depreciation, they their spending power went

500
00:32:13,920 --> 00:32:16,480
Speaker 4: down massively, right and and and and and they and

501
00:32:16,480 --> 00:32:18,440
Speaker 4: and they were able to survive. And it was actually

502
00:32:18,480 --> 00:32:22,080
Speaker 4: quite interesting that they were holding up quite well. And

503
00:32:22,120 --> 00:32:24,240
Speaker 4: this is because of those savings, right, of the high

504
00:32:24,320 --> 00:32:28,240
Speaker 4: high savings that Iranian households had I'm not sure what's

505
00:32:28,240 --> 00:32:31,800
Speaker 4: the situation right now, because they've been I think, you know,

506
00:32:31,880 --> 00:32:35,760
Speaker 4: on a net basis, those savings have been have been

507
00:32:36,160 --> 00:32:38,360
Speaker 4: decreasing over the last couple of years because they had

508
00:32:38,360 --> 00:32:41,480
Speaker 4: just had to spend them. But yes, that's that's what

509
00:32:41,600 --> 00:32:44,280
Speaker 4: helped them, you know, survive the the inflation.

510
00:32:44,920 --> 00:32:47,160
Speaker 2: I just have one more question, I think, I mean

511
00:32:47,240 --> 00:32:49,640
Speaker 2: when when when we talked about this a few years

512
00:32:49,640 --> 00:32:53,080
Speaker 2: ago and obviously earlier on the chat just now, and

513
00:32:53,120 --> 00:32:56,000
Speaker 2: you were talking about comps within the m s c

514
00:32:56,080 --> 00:33:00,880
Speaker 2: I or perhaps expectations that one day there would be

515
00:33:00,880 --> 00:33:05,440
Speaker 2: a proper easing of relations between Iran and Western capitals

516
00:33:05,480 --> 00:33:09,560
Speaker 2: and that that would open up markets, et cetera. Presumably

517
00:33:09,760 --> 00:33:12,960
Speaker 2: a lot of that as the expectations are going to reverse.

518
00:33:13,440 --> 00:33:16,960
Speaker 2: But could it be that that never happens, and that

519
00:33:17,040 --> 00:33:20,440
Speaker 2: the future is just a much bigger, sort of Chinese

520
00:33:20,520 --> 00:33:26,760
Speaker 2: centric sphere of financial influence in the region, exports across Afghanistan,

521
00:33:26,840 --> 00:33:31,440
Speaker 2: more trade with Russia, and that Iran Iranian companies end

522
00:33:31,520 --> 00:33:35,880
Speaker 2: up benefiting from the emergence of a basically separate you know,

523
00:33:35,920 --> 00:33:39,240
Speaker 2: people talk about the bricks for the deglobalization. Yeah, yeah,

524
00:33:39,280 --> 00:33:44,480
Speaker 2: that basically instead of it one day becoming plugging more

525
00:33:44,600 --> 00:33:47,960
Speaker 2: into Western financial system that it never does that, it

526
00:33:48,040 --> 00:33:52,040
Speaker 2: just plugs into another large emerging financial system to the

527
00:33:52,080 --> 00:33:53,720
Speaker 2: benefit of Iranian companies.

528
00:33:53,920 --> 00:33:56,960
Speaker 4: This is what's happening right now. Absolutely, this part of

529
00:33:57,040 --> 00:34:03,400
Speaker 4: the regionalization trend. In terms ofization, Iran is being accepted

530
00:34:03,440 --> 00:34:07,880
Speaker 4: to all those organizations like like bricks, like Shanghai Corporation Organization,

531
00:34:08,840 --> 00:34:12,480
Speaker 4: which doesn't mean much because these are just political organizations.

532
00:34:12,719 --> 00:34:14,520
Speaker 4: But on the other hand, it means that you know,

533
00:34:14,560 --> 00:34:17,760
Speaker 4: it's not isolated there right, that the country is welcome

534
00:34:17,880 --> 00:34:22,120
Speaker 4: and will be part of those you know, potentially different systems,

535
00:34:22,160 --> 00:34:27,239
Speaker 4: which can be I don't know, financial systems or economic ecosystems.

536
00:34:27,719 --> 00:34:31,720
Speaker 4: So yes, absolutely this is happening. However, there is another

537
00:34:31,800 --> 00:34:35,440
Speaker 4: big factor that will be driving Iran's direction in the future,

538
00:34:35,800 --> 00:34:41,440
Speaker 4: and it's the population. It's demographics. Look, ninety million people

539
00:34:41,719 --> 00:34:45,560
Speaker 4: live in Iran and two thirds of them were born

540
00:34:45,800 --> 00:34:49,200
Speaker 4: after the revolution in seventy nine, so they can't really

541
00:34:49,280 --> 00:34:53,799
Speaker 4: relate to any revolutionary slogans. They have their own, like

542
00:34:54,000 --> 00:34:58,080
Speaker 4: you know, vision for the country idea. They basically have

543
00:34:58,239 --> 00:35:00,520
Speaker 4: their own vision of their lifestyle that they want to have.

544
00:35:00,800 --> 00:35:03,759
Speaker 4: Right and and this is the same trend that is

545
00:35:03,760 --> 00:35:06,560
Speaker 4: happening in other countries like Soudi Arabia, and Soudi Arabia

546
00:35:06,640 --> 00:35:11,880
Speaker 4: is liberalizing a lot of areas of life. And you know,

547
00:35:11,960 --> 00:35:14,399
Speaker 4: it's a very good decision. But I but I think

548
00:35:14,440 --> 00:35:18,200
Speaker 4: that actually they don't have any other choice because you know,

549
00:35:18,239 --> 00:35:21,680
Speaker 4: whichever country we're talking about, the local regime, the local

550
00:35:21,800 --> 00:35:23,919
Speaker 4: government you know, at the end of the day, wants

551
00:35:23,960 --> 00:35:26,920
Speaker 4: to stay in power, right, so they need to adjust

552
00:35:27,280 --> 00:35:31,520
Speaker 4: to to basically have you know, their population happy and

553
00:35:31,600 --> 00:35:33,480
Speaker 4: accept the states quo in terms of you know, the

554
00:35:33,560 --> 00:35:35,840
Speaker 4: power and the regime and so on. So they have

555
00:35:35,960 --> 00:35:38,920
Speaker 4: to change and and and and this this, this is

556
00:35:39,040 --> 00:35:41,800
Speaker 4: driving countries. I mean the same with you know, protests

557
00:35:41,800 --> 00:35:43,480
Speaker 4: that you could see at the beginning of the year

558
00:35:43,520 --> 00:35:48,240
Speaker 4: in in Iran, women protests. This is all changing the country,

559
00:35:48,280 --> 00:35:53,359
Speaker 4: even if it's not like visible immediately, it's it's it's

560
00:35:53,400 --> 00:35:55,600
Speaker 4: it's a massive force. And I think this will also

561
00:35:55,719 --> 00:35:57,280
Speaker 4: affect the direction of the country.

562
00:35:58,440 --> 00:36:01,440
Speaker 1: All right, MATCHA, thank you so much for that really

563
00:36:01,520 --> 00:36:05,120
Speaker 1: interesting conversation on a market that we don't often hear

564
00:36:05,239 --> 00:36:05,880
Speaker 1: a lot about.

565
00:36:06,360 --> 00:36:07,760
Speaker 3: Thanks for coming back on all thoughts.

566
00:36:08,160 --> 00:36:09,960
Speaker 4: Yes, great, it was great. Thank you so much.

567
00:36:10,160 --> 00:36:12,320
Speaker 2: Yeah, that was great, Thank you so much, really appreciate

568
00:36:12,360 --> 00:36:13,440
Speaker 2: it and great chat.

569
00:36:13,600 --> 00:36:14,360
Speaker 3: Super interesting.

570
00:36:14,520 --> 00:36:16,080
Speaker 2: We'll chat with you again in three.

571
00:36:16,000 --> 00:36:21,440
Speaker 4: Years, right right, yeah around teachers your patient right yo?

572
00:36:21,800 --> 00:36:37,359
Speaker 1: Right, So Joe, that was really interesting and we'll have

573
00:36:37,440 --> 00:36:39,840
Speaker 1: to talk to match again and I guess three years

574
00:36:39,920 --> 00:36:42,640
Speaker 1: time to see what's been going on. But I thought

575
00:36:42,640 --> 00:36:47,759
Speaker 1: the mention of apartments and used cars as speculative investments,

576
00:36:47,840 --> 00:36:50,480
Speaker 1: I had never heard that before for a ran that

577
00:36:50,600 --> 00:36:54,160
Speaker 1: was super interesting. And again his point that it was

578
00:36:54,239 --> 00:36:56,799
Speaker 1: sort of like China, but actually now a lot of

579
00:36:56,840 --> 00:36:59,920
Speaker 1: personal savings have been run down. I guess that makes

580
00:37:00,040 --> 00:37:02,440
Speaker 1: a lot of sense given the situation recently.

581
00:37:02,560 --> 00:37:06,319
Speaker 2: I thought that was an incredibly fascinating conversation because, yeah,

582
00:37:06,360 --> 00:37:09,319
Speaker 2: I mean, there are some sort of basic macro principles

583
00:37:09,360 --> 00:37:13,920
Speaker 2: that apply regardless of the situation the country finds. It's

584
00:37:13,960 --> 00:37:17,680
Speaker 2: in this idea that corporations in Irun operate with higher

585
00:37:17,719 --> 00:37:22,320
Speaker 2: stockpiles of raw materials and other inventories, the opposite of lean,

586
00:37:23,080 --> 00:37:24,200
Speaker 2: which of course the.

587
00:37:24,239 --> 00:37:27,480
Speaker 1: Corporate side of the personal savings rate, right, like you

588
00:37:27,640 --> 00:37:30,880
Speaker 1: have to build your own cushion. Yeah, extreme uncertainty.

589
00:37:30,960 --> 00:37:34,399
Speaker 2: In extreme uncertainty, you're not going to operate with sort

590
00:37:34,440 --> 00:37:38,040
Speaker 2: of minimal Obviously, American investors want to see, Oh, get

591
00:37:38,080 --> 00:37:40,960
Speaker 2: your inventory levels down, get your cash levels down, the

592
00:37:41,080 --> 00:37:44,000
Speaker 2: fish every right, That's not the way any company is

593
00:37:44,040 --> 00:37:47,399
Speaker 2: going to react in a country that's constantly buffeted by

594
00:37:47,480 --> 00:37:53,120
Speaker 2: various geopolitical forces and sanctions and many unexpected things. The

595
00:37:53,239 --> 00:37:59,000
Speaker 2: idea that there is this sort of beginning of increased relationships,

596
00:37:59,239 --> 00:38:01,560
Speaker 2: maybe just pull it go so far, so far, but

597
00:38:01,880 --> 00:38:04,479
Speaker 2: plugging into China and the bricks, et cetera, and maybe

598
00:38:04,480 --> 00:38:06,800
Speaker 2: it just never happens that. I thought it was a

599
00:38:06,880 --> 00:38:07,880
Speaker 2: very interesting conversation.

600
00:38:07,960 --> 00:38:08,160
Speaker 3: Yeah.

601
00:38:08,200 --> 00:38:11,239
Speaker 1: I liked your last question because I think, you know,

602
00:38:11,520 --> 00:38:14,759
Speaker 1: maybe a couple decades ago, there would have been an

603
00:38:14,760 --> 00:38:19,200
Speaker 1: assumption that a country like Iran would be absorbed into

604
00:38:19,239 --> 00:38:22,080
Speaker 1: the global economy. You know, you have this booming population

605
00:38:22,520 --> 00:38:27,319
Speaker 1: and the line of globalization was always going up. Yeah,

606
00:38:27,320 --> 00:38:29,960
Speaker 1: but I think in twenty twenty three there's certainly a

607
00:38:30,080 --> 00:38:32,879
Speaker 1: question mark around that, and it does seem like we're

608
00:38:32,880 --> 00:38:36,640
Speaker 1: heading more towards those sphere of influences as you mentioned.

609
00:38:36,360 --> 00:38:40,400
Speaker 2: Yeah, a few big spheres of influence, rather than an

610
00:38:40,480 --> 00:38:43,880
Speaker 2: expectation that it all sort of funnels into one on

611
00:38:45,480 --> 00:38:47,200
Speaker 2: one flow of capital around the world.

612
00:38:47,280 --> 00:38:48,839
Speaker 3: Yeah, exactly, shall we leave it there?

613
00:38:48,920 --> 00:38:49,600
Speaker 2: Let's leave it there.

614
00:38:49,680 --> 00:38:53,040
Speaker 1: Okay, this has been another episode of the Odd Thoughts podcast.

615
00:38:53,160 --> 00:38:56,400
Speaker 1: I'm Tracy Alloway. You can follow me on Twitter at Tracy.

616
00:38:56,120 --> 00:38:58,759
Speaker 2: Alloway and I'm Joe Wisenthal. You can follow me on

617
00:38:58,800 --> 00:39:02,400
Speaker 2: Twitter at the Star Wars. Follow our producers Carmen Rodriguez

618
00:39:02,440 --> 00:39:06,960
Speaker 2: at Carmen Arman, Dashel Bennett at Dashbot, and Kelbrooks at Kelbrooks.

619
00:39:07,320 --> 00:39:10,800
Speaker 2: Thank you to our producer Moses Ondam. For more Oddlots content,

620
00:39:10,840 --> 00:39:13,600
Speaker 2: go to Bloomberg dot com slash odd Lots, where we

621
00:39:13,760 --> 00:39:17,080
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622
00:39:17,120 --> 00:39:20,080
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623
00:39:20,080 --> 00:39:23,880
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624
00:39:23,920 --> 00:39:26,200
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625
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626
00:39:29,160 --> 00:39:31,680
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627
00:39:31,719 --> 00:39:35,480
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628
00:39:35,680 --> 00:39:38,920
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630
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Speaker 3: Thanks for listening.

631
00:40:06,160 --> 00:40:06,840
Speaker 1: In the e