Speaker 1: Hello, and welcome to another episode of the All Thoughts Podcast.
Speaker 1: I'm Tracy Alloway and I'm Joe.
Speaker 2: Why isn't that Joe?
Speaker 1: Have you looked at the Terran stock exchange recently?
Speaker 2: I have not. Let me look that up right now.
Speaker 3: I know it's going to happen.
Speaker 2: Nope, I can't find any data for it.
Speaker 1: Yeah, we have actually recorded.
Speaker 2: Do you know what happens when you look on the Bloomberg?
Speaker 1: Do you get a warning?
Speaker 3: How about you do?
Speaker 2: Yeah? So if you look, if you're on the Bloomberg
Speaker 2: terminal and you want to see what's happening on the
Speaker 2: Tehran Stock Exchange, you actually get a red bar and
Speaker 2: it said sanctions may apply to this instrument, and you
Speaker 2: can't get the data.
Speaker 1: Yeah, that's exactly right. And we have actually done an
Speaker 1: episode on Iranian stocks before. And one of the reasons
Speaker 1: this particular market is interesting is because it has to
Speaker 1: be the most unfamiliar equity market out there, I think
Speaker 1: for the vast majority of investors. Because of sanctions, you
Speaker 1: can't access data on it. You're not going to see
Speaker 1: a lot of news stories on what's going on with
Speaker 1: Iranian stocks. It's just really hard to get a sense
Speaker 1: at any single point in time of what this market
Speaker 1: is doing, what it's comprised of, and basically any information
Speaker 1: on it at all.
Speaker 2: That's right, It's very strange it exists. There are plenty
Speaker 2: of stocks on it, you know. It's always sort of interesting,
Speaker 2: I guess, to be reminded that stock markets exist in
Speaker 2: all these far flowing locations. Iran, of course, is a
Speaker 2: relatively big middle income country, but because of the sanctions,
Speaker 2: it's just so unplugged into the Western financial system. You
Speaker 2: never it just doesn't even come up in any conversation.
Speaker 2: I mean, you hear much more about say the Saudi
Speaker 2: market or something like that.
Speaker 1: Absolutely, and I'm almost kind of surprised when I read
Speaker 1: the numbers behind how big the range economy actually is,
Speaker 1: because again, it's just one that people don't really talk
Speaker 1: about that much, except maybe in the context of oil exports.
Speaker 1: But anyway, as I mentioned, we did an episode on
Speaker 1: the Iranian stock market a couple years ago, and obviously
Speaker 1: Iran is back in the news. There's always been a
Speaker 1: degree of geopolitical risk in this market for obvious reasons.
Speaker 1: We already mentioned sanctions, but geopolitical risk has just kicked
Speaker 1: into high gear given the conflict between Israel and Hamas,
Speaker 1: and so I thought it might be interesting to bring
Speaker 1: back our guest and just try to take a look
Speaker 1: at what's happening in this extremely unfamiliar and sort of
Speaker 1: opaque market.
Speaker 2: That's right, and obviously right prior to the start of
Speaker 2: the war, you know, obviously there had been talk and
Speaker 2: we talked about this with Gregory brew Actually there had
Speaker 2: been this easing not of the sanctions, but of it seemed,
Speaker 2: of the enforcement of the sanctions, and so a lot
Speaker 2: of Iranian oil has been flowing out of the country
Speaker 2: despite the sanctions, and of course there was that money
Speaker 2: that the Biden administration had unfrozen and then since refrozen,
Speaker 2: and so there had been some macro moves happening around.
Speaker 2: Whatever trajectory Iran may have been on is probably on
Speaker 2: something different now.
Speaker 1: Absolutely, so we are going to be speaking with our
Speaker 1: previous guest. It's match A Voytol. He is an investor
Speaker 1: in Iranian stocks. In fact, I think he's the only
Speaker 1: or he runs, the only foreign institutional investor that is
Speaker 1: actually investing in Iran. So again, not a very crowded
Speaker 1: market and certainly an unusual one. Matche thank you so
Speaker 1: much for coming back on all thoughts.
Speaker 4: Hi, thank you for having me.
Speaker 1: So maybe just to begin with, you could sort of
Speaker 1: give us a reminder of what it is that you
Speaker 1: and your fund actually do for listeners who weren't listening
Speaker 1: to all blots back in twenty What's what's your mandate?
Speaker 4: Right? So really like a like a brief description of
Speaker 4: what we're doing and why we are doing this. So
Speaker 4: we run an equity fund. It's a proper mutual fund
Speaker 4: registered in one of the European jurisdictions, and our mandate
Speaker 4: is to buy stocks listed on the Tehran Stock Exchange.
Speaker 4: So Terran Stock Exchange is the biggest stock market that
Speaker 4: no one has ever heard of, and it's a proper market.
Speaker 4: It has around six hundred companies listed. More than fifty
Speaker 4: different industries are present on the market, so it's not
Speaker 4: a proxy on oil prices. It's around two hundred and
Speaker 4: fifty billion dollar market cup and this decent liquidity. So
Speaker 4: if Iran was properly integrated into you know, global financial
Speaker 4: markets with no sanctions on it, you know, Iran would
Speaker 4: be definitely one of the members in MSCI Emerging Markets
Speaker 4: in this is or would be the biggest member of
Speaker 4: MSA frontier markets. And this is but because of all
Speaker 4: those difficulties that you mentioned related to sanctions mainly and
Speaker 4: capital controls, there are no foreign investors there. We got
Speaker 4: interested back in twenty sixteen when it became legal to
Speaker 4: start doing anything with your run. Well, as long as
Speaker 4: you're not an American investor. Americans still cannot touch the market,
Speaker 4: but it became legal for everyone else pretty much. But still,
Speaker 4: you know, half of our work is doing due diligence
Speaker 4: and actually you know, working on operations to to make
Speaker 4: it possible to investor. But you know, what's what's interesting,
Speaker 4: why why we are doing this is that you know,
Speaker 4: you mentioned that it's that that you were surprised how
Speaker 4: big Iran's economy is, and I would say that that, no,
Speaker 4: it's actually very small comparing to how big it could
Speaker 4: get because he ran. You know, it's around ninety million people,
Speaker 4: the largest combined oil and gas reserves in the world,
Speaker 4: and they properly developed and diversified economy well thanks to
Speaker 4: decades of sanctions, they didn't have a choice. They had to,
Speaker 4: you know, develop all different parts of the economy. And
Speaker 4: all this in terms of GDP is around well, depending
Speaker 4: how you calculated, but it's around two hundred billion dollars. Now,
Speaker 4: when you look at Turkey, which is a similar size
Speaker 4: of the country in terms of population and geographical size,
Speaker 4: but no natural resources, Turkey is around eight hundred nine
Speaker 4: hundred billion dollars. If you look at Saudi Arabia, which
Speaker 4: has no other pretty much no other sectors except for
Speaker 4: you know, oil and some petrochemicals, the GDP over there
Speaker 4: is around one trillion dollars. So in some you know,
Speaker 4: super optimistic, very very positive scenario, if everything went well
Speaker 4: for Iran, Iran could become basically the combination of the two,
Speaker 4: which is, you know, anywhere one point eight to two
Speaker 4: trillion dollars. So the upside for the economy is you know,
Speaker 4: eight times from where it is right now. So this
Speaker 4: is the potential, This is the optionality that is in
Speaker 4: the market. And on top of that, once the country
Speaker 4: starts to open up, obviously there is a long list
Speaker 4: of things that would have to you know, come in place.
Speaker 4: Then we expect to see a lot of capital flowing
Speaker 4: into the market. And right now it's only domestic capital
Speaker 4: and us which means that because there is not enough capital,
Speaker 4: the you know, access local assets are valued at very
Speaker 4: low levels. So we what we are seeing in the
Speaker 4: market is, you know, we're buying stocks four to five
Speaker 4: times forward net earnings. Those earnings are growing, they are
Speaker 4: paying dividends. The average or the medium dividend field you
Speaker 4: know for the top one hundred companies is probably close
Speaker 4: to fifteen percent, so you know, strong double digit dividend fields.
Speaker 4: Valuations at such levels that you know, they cannot really
Speaker 4: fall further as long as those earnings are growing. So
Speaker 4: investment risks are pretty small, pretty limited. You have different
Speaker 4: sorts of risks. You have geopolitics exactly as you mentioned.
Speaker 4: I mean, you know, those those equities basically are priced
Speaker 4: for war, and obviously there is a reason. There might
Speaker 4: be a reason for that, because it's because it's the
Speaker 4: Middle East. And it's amazing how the how the narrative
Speaker 4: you know, the region reminded everyone that you know that
Speaker 4: the situation and the and the perception of the region
Speaker 4: can can make a U turn overnight, because a month
Speaker 4: ago it was not only what you mentioned in the
Speaker 4: introduction that you know, there was some sort of arrangement
Speaker 4: between Iran and the US which led to the prisoner exchange,
Speaker 4: which which was very important because historically prisoner exchange was
Speaker 4: usually the first step to something bigger. And then on
Speaker 4: top of that, you know, Iran is selling a lot
Speaker 4: of oil, so obviously sanctions are probably you know, not
Speaker 4: enforced very very strictly and so on. But the bigger
Speaker 4: story a month ago was in the whole Middle East
Speaker 4: where Iran basically signed a you know, you can call
Speaker 4: it the peace treaty with Saudi Arabia after many years
Speaker 4: of not having the promoting relations. Then what followed were
Speaker 4: you know, discussions and restoration of diplomatic ties with between
Speaker 4: Iran and you know, Age of Bukrain, all Saudi Saudi allies.
Speaker 2: And so you know, obviously want to talk about the
Speaker 2: the trajectory of the country. But to back up for
Speaker 2: a moment, obviously the country, as we said in the intro,
Speaker 2: the country's entire financial system extremely cut off to the
Speaker 2: point that you can't access the data. Can you talk
Speaker 2: about how just remind us for those who haven't listened
Speaker 2: to the episode, which I think was late twenty nineteen
Speaker 2: or early twenty twenty, the mechanics of how you access
Speaker 2: the stock exchange from where you are.
Speaker 4: Okay, Yeah, so look, you have to access te Ran
Speaker 4: Stock Exchange website, which actually sometimes you're not able to
Speaker 4: access it from IPS from outside of Iran. We subscribe
Speaker 4: to local services price services like you know Mini Bloomberg's
Speaker 4: in Iran that offer a very decent the way of
Speaker 4: you know, going through the data so you can not
Speaker 4: only you cannot not only follow the prices stock prices,
Speaker 4: but also it's a good database in a nice format
Speaker 4: of historical earnings, quarterly earnings, monthly sales data, corporated announcements,
Speaker 4: charts or different types of charts like price charts, fundamental charts,
Speaker 4: historical valuations and so on and so forth. So this is
Speaker 4: all available in Iran. You have to you know, find
Speaker 4: those you know, those suppliers, subscribe to those services. It's
Speaker 4: much much easier if you have people on the ground.
Speaker 4: So we had an office with free full time analysts
Speaker 4: who you know, who help with not only you know, research,
Speaker 4: but also getting things done because you know, some things
Speaker 4: you actually have to do manually. There. For example, companies
Speaker 4: paid very high dividends. Dividend yieldy is very high in
Speaker 4: the market, but they try not to pay for as
Speaker 4: long as possible, right because interest rates are high, so
Speaker 4: they try to get this you know, interest for as
Speaker 4: long as possible, so you actually have to chase them
Speaker 4: to pay it, right, you call them, you send faxes, right,
Speaker 4: stuff like that. So it's you need someone on the
Speaker 4: ground to do it on your behalf.
Speaker 1: Okay, another really basic question on that note, and again
Speaker 1: we are unable to access any sort of data, but
Speaker 1: what has been going on with Iranian stocks recently?
Speaker 4: Right, so on seventh of October, I believe that it
Speaker 4: was the case for the whole region that they is,
Speaker 4: local currency is sold off and local stock stock markets
Speaker 4: went down. Obviously, what happened was that over the so
Speaker 4: initially everything went down. For the first three weeks, the index,
Speaker 4: local equity index measured in dollar terms was going down,
Speaker 4: with the lowest point around ten percent in terms of
Speaker 4: you know, the correction. Since then it started bouncing back.
Speaker 4: In local currency terms, the equity indexes actually at the
Speaker 4: level from seventh October, so it made up for all
Speaker 4: the losses. The currency is still down, so from a
Speaker 4: foreign investor who is measuring you know, the P and
Speaker 4: L in dollar terms, you are still roughly three percent down,
Speaker 4: so it's actually not that bad given you know, the circumstances.
Speaker 4: Given that the risk for local markets and especially Iran,
Speaker 4: which is involved in everything that is going on. You know,
Speaker 4: the worst case scenario is that potentially there is a
Speaker 4: military conflict war and I don't know Iranian refineries or
Speaker 4: petro chemical plants or military targets and so on. So
Speaker 4: there was and people were quite scared. We could see this.
Speaker 4: Some of the sectors went down in the meantime for
Speaker 4: by about twenty percent, bounced back since then, but mainly
Speaker 4: there was happening due to very low liquidity. What was
Speaker 4: the biggest impact actually we could see was on liquidity.
Speaker 4: Normal liquidity is around one hundred and fifty million dollars
Speaker 4: per day, and it went to as low as thirty
Speaker 4: forty million. So what was going down the most is
Speaker 4: actually the most ill liquid stocks or ill liquid industries.
Speaker 4: So when I when I look at sectors that really
Speaker 4: were hit the most, it's textile producers, confectioneries, you know,
Speaker 4: so think they're not related to war or geopolitics at all,
Speaker 4: but they are basically in liquid. And one thing important
Speaker 4: to remember, so the stock market is driven by retail investors.
Speaker 4: Ninety percent of daily trading is done by retail, so
Speaker 4: you know it's very emotional, it's very short term momentum,
Speaker 4: I would say, so they are selling or buying depending
Speaker 4: on the recent price action, so they were driving the
Speaker 4: share price direction basically.
Speaker 1: So when you say performance hasn't been that bad, I'm
Speaker 1: kind of curious what the basis of comparison is, because
Speaker 1: you know, in a frontier market or an emerging market,
Speaker 1: if you're looking at you know, Kuwaiti stocks or something
Speaker 1: like that, I imagine you would look at the wider benchmark
Speaker 1: or other members of like the MSCI Emerging Market Index
Speaker 1: or something like that, and that would help you gauge
Speaker 1: relative performance. But for something like Iran, because it's so unusual,
Speaker 1: it feels difficult to benchmark its performance in one way
Speaker 1: or another.
Speaker 4: Yes, and the thing that is most volatile in Iran
Speaker 4: is the currency. So the stock market is much less
Speaker 4: volatile in the local currency than when measured in dollar terms.
Speaker 4: The local stock market is actually well hedged against the
Speaker 4: currency depreciations because it's the majority of the biggest companies
Speaker 4: are actually exporters. They benefit from currency depreciation, but share
Speaker 4: prices react with a lack So for a for a
Speaker 4: foreign investor, you initially usually when something is happening. You
Speaker 4: usually get hit see a drawdown due to a big
Speaker 4: currency volatile currency move, and then the stock market usually
Speaker 4: rallies because you know, people realize that exporters will start
Speaker 4: showing better earnings and when share price eventually will always
Speaker 4: you know, follow EPs and the lag is is because
Speaker 4: the market is driven by retail. So you know, in
Speaker 4: the US everything would be you know, any currency move
Speaker 4: would be priced you know, real time into share prices
Speaker 4: of stock that are sensitive to currency moves, right, and
Speaker 4: in Iran sometimes takes you know a month for two months, right,
Speaker 4: So it's actually a big opportunity that you have time
Speaker 4: to to to position yourself correctly. But also what you
Speaker 4: can compare it with is okay, there are two two
Speaker 4: two interesting facts about the performance of the market. So,
Speaker 4: first of all, when I looked at the last fifteen
Speaker 4: years and big geopolitical events for example, like previous conflicts
Speaker 4: with Hamas in Gaza, or there was a situation between
Speaker 4: Iran and the US where people were saying that this
Speaker 4: was close to a military conflict when Iranian General Solimani
Speaker 4: was killed and then Iran retaliated by firing some missiles
Speaker 4: at a American base in Iraq. When I looked at
Speaker 4: the performance of the market, it never went down more
Speaker 4: than ten percent in dollar terms. Actually, so what happened
Speaker 4: right now, I think the bottom was around almost eleven percent,
Speaker 4: was pretty much in line with those historical geopolitical events
Speaker 4: that were also presented a big risk for the local market.
Speaker 4: But another way of looking at the Iranian market is
Speaker 4: the historical performance, and this is very interesting because if
Speaker 4: you look at the performance of the benchmark equity index
Speaker 4: it's called ted Picks Index, total total return for the
Speaker 4: last fifteen years, so since the inception in twenty eighteen,
Speaker 4: the annualized return in dollars is around eleven percent, which
Speaker 4: I think is quite amazing because it's pretty much the
Speaker 4: same as for S and P five hundred, maybe maybe
Speaker 4: twelve percent for S five hundred, So it's the same ballpark,
Speaker 4: and the environment was completely different, I mean, couldn't be
Speaker 4: more different, because over that over the last fifteen years
Speaker 4: in the US, you had you know, technology revolution, those
Speaker 4: mega apps you know, appearing on the market, interest rates
Speaker 4: you know initially going to zero, the top of the cycle,
Speaker 4: you know, margins operating margins on top of them, you know,
Speaker 4: top of the top of the cycle basically evaluations. And
Speaker 4: in Iran you had two episodes of currency depreciation of
Speaker 4: more than seventy five percent, you had some some crazy presidents,
Speaker 4: you had US sanctions un sanctions, and still at the
Speaker 4: end of the day, when you measure the performance, compare
Speaker 4: the performance over the last fifteen years, it's pretty much
Speaker 4: the same, obviously with much bigger volatility, because you know,
Speaker 4: the in Iran the volatility was probably around forty percent
Speaker 4: or something. But that shows you that, you know, when
Speaker 4: you're buying assets had very very low valuations, and I
Speaker 4: say talking about you know, there's four times net earnings,
Speaker 4: let's say, and the economy and those companies are actually
Speaker 4: naturally hatched against the currency volatility or big depreciation. Then
Speaker 4: you know, even in those countries where things are going
Speaker 4: really bad, you can still make money. But what is
Speaker 4: more important is that if in bed times you were
Speaker 4: still averaging, you know, eleven percent per year, you know,
Speaker 4: just think what you can make, what you can expect
Speaker 4: when when you know things finally go the right way
Speaker 4: for Iran and the country opens up and so on,
Speaker 4: you know, that's that's that's the potential that we are
Speaker 4: obviously hoping for her.
Speaker 2: Talk to us about perhaps the signs of a thaw
Speaker 2: in these several months leading up to October seventh, between
Speaker 2: the prisoner exchange, the expanded flow of oil from the
Speaker 2: perception of a lower enforcement of the sanctions. Was that
Speaker 2: showing up in the in the market in a clear way,
Speaker 2: and just to sort of emphasize that further, would there
Speaker 2: way to see that in the sectoral breakdown? So for example,
Speaker 2: if there is more oil flowing out of Iran or
Speaker 2: if there was, was that redounding to the benefit of
Speaker 2: oil related listed Iranian stocks?
Speaker 1: Good question.
Speaker 4: So the question about oil, the answer is no, because
Speaker 4: oil is not listed. The only oil related stock that
Speaker 4: you can find our local oil refineries that you know,
Speaker 4: produce you know.
Speaker 2: So they don't they don't benefit from further export.
Speaker 4: They are correlated to cruck spreads because they're domestic formula
Speaker 4: for the price at which they are buying oil from
Speaker 4: the government is a function of regional cruckspreads. So nothing
Speaker 4: nothing to do with it. But there was one instrument
Speaker 4: that showed perfectly higher oil sales is the currency. The
Speaker 4: currency which I've been talking about that it's so volatile
Speaker 4: this year, it's been it's been super stable, around five
Speaker 4: hundred thousand real per dollar, and it's been going, Oh,
Speaker 4: I don't know what's the volatility, volatility, having checked it,
Speaker 4: but it's you know, comparing to the previous couple of years,
Speaker 4: like nothing is going on with the currency, and this
Speaker 4: is and this is this is a clear signal that
Speaker 4: there are enough reserves that you know, Central Bank of
Speaker 4: Iran is accumulating that you know, the pressure is gone.
Speaker 4: I mean, it's you know, it's still very complicated because
Speaker 4: you know, bank transfers don't really work or at least
Speaker 4: not easy with with Iran. So whenever Iran and exporters
Speaker 4: are selling something, whether this is oil or some more
Speaker 4: formal exports and more transparent exports, very often they don't
Speaker 4: get the money back to Iran. It's it's it's somewhere there.
Speaker 4: They get paid to I don't know, accounts in China
Speaker 4: or whatever, and it's and it's lying on those accounts
Speaker 4: and then money from those accounts can be used to
Speaker 4: find and imports, but it's not really coming back to Iran.
Speaker 4: So it's helping because Iran has probably needs to spend
Speaker 4: roughly twenty billion dollars per year to finance some essential imports, right,
Speaker 4: and this is and this is this is like the
Speaker 4: minimum amount. If this is missing, then well Iran will
Speaker 4: have to buy dollars at any price. And this is
Speaker 4: and this is when big depreciations happen, right, because they
Speaker 4: need to buy some food, some some pharmaceuticals and so on,
Speaker 4: so they will buy that any price. So when this
Speaker 4: is covered, then on top of that you have budget deficit.
Speaker 4: But this is again maybe ten, maybe fifteen billion billion dollars.
Speaker 4: So altogether, if Iran manages to get thirty to forty
Speaker 4: billion dollars per year from oil sales, things are pretty
Speaker 4: much sorted in terms of steadility, in terms of financing imports,
Speaker 4: in terms of you know, budget deficit and so one.
Speaker 4: In normal circumstances, you know, countries opened well integrated with
Speaker 4: the rest of the world and so on, they will
Speaker 4: see every month inflow of you know, several billion dollars
Speaker 4: that will put pressure actually on the on the appreciation
Speaker 4: of the Iranan currency, of the Iranan reality. So yeah,
Speaker 4: so that's that's that's important. So you could see this
Speaker 4: change the last couple of quarters exactly in the exchange rate,
Speaker 4: and it's and it's astonishing, how you know, how volatility
Speaker 4: went down on the effects.
Speaker 1: So I take the point about the market itself being
Speaker 1: influenced by currency movements and things like that.
Speaker 3: But you already.
Speaker 1: Described how the players in Iranian stocks are mostly retail investors.
Speaker 1: I'm going to assume mostly domestic retail investors too, but
Speaker 1: you can correct me if I'm wrong. Can you maybe
Speaker 1: give us a little bit more color about what drives
Speaker 1: retail sentiment around Iran and inflows, because I imagine and correct
Speaker 1: me if I'm wrong, but like to me, it must
Speaker 1: be kind of a macro story, but maybe people get
Speaker 1: excited about individual stocks or the prospects for individual companies,
Speaker 1: But just give us a little bit more of a
Speaker 1: sense of what drives that sentiment.
Speaker 4: Yes, so it's I think pretty pretty easy. So it's
Speaker 4: the dollar, so the exchange rate of the dollar. It's
Speaker 4: the momentum. So if stop socialing momentum, then they start
Speaker 4: chasing momentum. And interest rates local interest rates, so maybe
Speaker 4: not central bank interest rates, but you know, whatever, whatever
Speaker 4: the deposit interest rate is. If there are several asset
Speaker 4: classes in Iran for retail investors, so real estate is
Speaker 4: the big one, the biggest one, but it's a you know,
Speaker 4: high ticket item, so not everyone can trade in and
Speaker 4: out of apartments. It's it's a well understood asset class
Speaker 4: as everywhere. Is why it's it's it's a bit you know,
Speaker 4: less interesting for us. So if Uranus have any spare cash,
Speaker 4: they will buy real estate. From what I heard, thirty
Speaker 4: percent of apartments in Tehran are actually empty because they
Speaker 4: are basically used to as a store of value, just
Speaker 4: to park somewhere, you know, assets savings, and they're not
Speaker 4: even rented out, they're just empty. And also just bear
Speaker 4: in mind that in Tehran, in the best places, best
Speaker 4: neighborhoods of Tehran, prices are quite expensive. So in the
Speaker 4: north of Tehran, if you want to buy an apartment,
Speaker 4: you have to pay around ten thousand dollars per squaremeter,
Speaker 4: so you know, a hundred scarameter of apartment, I don't know,
Speaker 4: three bedrooms will cost you, you know, a million dollars
Speaker 4: or something. Right in Iran, which which is which is
Speaker 4: a poor country, So this is real estate. Real estate
Speaker 4: is number one asset class. A very important class are
Speaker 4: used cars. So people trade use cars because they they
Speaker 4: they are again a hedge against inflation, against the currency
Speaker 4: depreciation because carrent manufacturers will always adjust prices based on inflation.
Speaker 4: Some of them have to be some of the components
Speaker 4: have to be imported, which is not easy. So you know,
Speaker 4: they produce more than one million cars, are actually closer
Speaker 4: probably to to one point five million cars per year,
Speaker 4: but this is not enough, so the demand is much higher.
Speaker 4: So they're trading used cars and their platforms that help
Speaker 4: you trade use cars. It's a it's a it's a
Speaker 4: proper asset class. And yes, and every iranium is actually
Speaker 4: a currency trader because because you know the currency has
Speaker 4: been so volatile historically that it's very important that you
Speaker 4: know what's happening to the to the dollar right or
Speaker 4: to the local currency you know against the dollar. So
Speaker 4: everyone is tracking, you know, the exchange rates. And it's
Speaker 4: not easy to buy and sell dollars. There are quotas
Speaker 4: for you know, individual Uranians due to capital controls. So
Speaker 4: that's why instead of buying dollars or to buy or
Speaker 4: to get a bigger position, they go to those proxy
Speaker 4: asset classes like used cars or of real estate and
Speaker 4: also interest rates so you can buy sell treasure rebels,
Speaker 4: treasury reviews up to you know, two years maturity. They
Speaker 4: they pay around twenty five percent. YouTube maturity may be
Speaker 4: a bit more right now. So, so interest rates are high.
Speaker 4: And that's another thing. Look when you when you when
Speaker 4: you look at Iran, there is not enough capital there.
Speaker 4: There's basically not enough money, not enough credit doesn't exist.
Speaker 4: I mean you cannot get a mortgage at you know,
Speaker 4: twenty five percent, right, I mean you cannot finance anything
Speaker 4: at twenty five percent. And because of very volatile metro,
Speaker 4: people also tend to you know, postpone investment decisions, whether
Speaker 4: these are individuals or more importantly companies. Right, everyone is
Speaker 4: looking like six months ahead, maybe twelve months ahead, right,
Speaker 4: and managing managing a crisis, because there is always some
Speaker 4: sort of crisis. Right, So when you think about it,
Speaker 4: for example, I don't know, every company is running big
Speaker 4: inventories just in case, just so that they have enough
Speaker 4: you know, material to manufacture their products. So they are
Speaker 4: not optimized organized in this very efficient, you know leaning
Speaker 4: way they are. They are organized, you know, just to survive,
Speaker 4: survive basically you know, war conflicte, currency depreciation, sanctions, trade disruptions.
Speaker 3: Whatever, right, right, matcha.
Speaker 1: This is exactly what I wanted to ask you, because
Speaker 1: when you mentioned, you know, people investing in real estate
Speaker 1: as a speculative pl and the idea of a certain
Speaker 1: proportion of apartments standing empty in Iran. The example that
Speaker 1: immediately spread the mind was China. And in China there's
Speaker 1: a lot of money that's sort of trapped and recirculating
Speaker 1: in the economy. I used to call it China's Great
Speaker 1: Ball of Money because of capital controls, and I imagine
Speaker 1: maybe there's a similar issue in Iran where there's not
Speaker 1: enough capital but there's a lot of domestic savings that
Speaker 1: are sort of are unable to get outside of the
Speaker 1: Iranian economy. Is that the right way to think of it?
Speaker 4: So my understanding is that it used to be the
Speaker 4: case that Iran, when you looked at household savings was
Speaker 4: you know, top of the list when you look at
Speaker 4: emerging markets at least in like you know, purchasing power
Speaker 4: parity way of looking at this. However, last couple of
Speaker 4: years have been really tough for your dance due to sanctions.
Speaker 4: So when sanctions were ranged in twenty eighteen, they haven't
Speaker 4: heard manufacturing, they haven't heard exports companies that much. To
Speaker 4: be honest, I mean, because you know, people find the
Speaker 4: way I mean companies that exports in the region, they
Speaker 4: are not really affected by sanctions, big exporters that used
Speaker 4: to send you know, products to Japan and so one, yes,
Speaker 4: they were affected, but they found other roots and manufacturers.
Speaker 4: You know, sanctions cost one thing. I mean, sanctions caused
Speaker 4: the currency volatility, so the big depreciations of real and
Speaker 4: manufacturers who have costs in real but they either sell
Speaker 4: in heart currency or at prices linked to some regional
Speaker 4: benchmarks that are in heart currency, their margins actually expanded. Look,
Speaker 4: it's an interesting thing that the highest earnings growth that
Speaker 4: we've seen over the last couple of years was one
Speaker 4: year after the twenty eighteen sanctions. This is crazy because
Speaker 4: this is you know, not not as intended I would assume, right,
Speaker 4: and and who got hurt by sanctions, Well, households because
Speaker 4: they are price takers. So when the inflation shot up
Speaker 4: because of the currency depreciation, they their spending power went
Speaker 4: down massively, right and and and and and they and
Speaker 4: and they were able to survive. And it was actually
Speaker 4: quite interesting that they were holding up quite well. And
Speaker 4: this is because of those savings, right, of the high
Speaker 4: high savings that Iranian households had I'm not sure what's
Speaker 4: the situation right now, because they've been I think, you know,
Speaker 4: on a net basis, those savings have been have been
Speaker 4: decreasing over the last couple of years because they had
Speaker 4: just had to spend them. But yes, that's that's what
Speaker 4: helped them, you know, survive the the inflation.
Speaker 2: I just have one more question, I think, I mean
Speaker 2: when when when we talked about this a few years
Speaker 2: ago and obviously earlier on the chat just now, and
Speaker 2: you were talking about comps within the m s c
Speaker 2: I or perhaps expectations that one day there would be
Speaker 2: a proper easing of relations between Iran and Western capitals
Speaker 2: and that that would open up markets, et cetera. Presumably
Speaker 2: a lot of that as the expectations are going to reverse.
Speaker 2: But could it be that that never happens, and that
Speaker 2: the future is just a much bigger, sort of Chinese
Speaker 2: centric sphere of financial influence in the region, exports across Afghanistan,
Speaker 2: more trade with Russia, and that Iran Iranian companies end
Speaker 2: up benefiting from the emergence of a basically separate you know,
Speaker 2: people talk about the bricks for the deglobalization. Yeah, yeah,
Speaker 2: that basically instead of it one day becoming plugging more
Speaker 2: into Western financial system that it never does that, it
Speaker 2: just plugs into another large emerging financial system to the
Speaker 2: benefit of Iranian companies.
Speaker 4: This is what's happening right now. Absolutely, this part of
Speaker 4: the regionalization trend. In terms ofization, Iran is being accepted
Speaker 4: to all those organizations like like bricks, like Shanghai Corporation Organization,
Speaker 4: which doesn't mean much because these are just political organizations.
Speaker 4: But on the other hand, it means that you know,
Speaker 4: it's not isolated there right, that the country is welcome
Speaker 4: and will be part of those you know, potentially different systems,
Speaker 4: which can be I don't know, financial systems or economic ecosystems.
Speaker 4: So yes, absolutely this is happening. However, there is another
Speaker 4: big factor that will be driving Iran's direction in the future,
Speaker 4: and it's the population. It's demographics. Look, ninety million people
Speaker 4: live in Iran and two thirds of them were born
Speaker 4: after the revolution in seventy nine, so they can't really
Speaker 4: relate to any revolutionary slogans. They have their own, like
Speaker 4: you know, vision for the country idea. They basically have
Speaker 4: their own vision of their lifestyle that they want to have.
Speaker 4: Right and and this is the same trend that is
Speaker 4: happening in other countries like Soudi Arabia, and Soudi Arabia
Speaker 4: is liberalizing a lot of areas of life. And you know,
Speaker 4: it's a very good decision. But I but I think
Speaker 4: that actually they don't have any other choice because you know,
Speaker 4: whichever country we're talking about, the local regime, the local
Speaker 4: government you know, at the end of the day, wants
Speaker 4: to stay in power, right, so they need to adjust
Speaker 4: to to basically have you know, their population happy and
Speaker 4: accept the states quo in terms of you know, the
Speaker 4: power and the regime and so on. So they have
Speaker 4: to change and and and and this this, this is
Speaker 4: driving countries. I mean the same with you know, protests
Speaker 4: that you could see at the beginning of the year
Speaker 4: in in Iran, women protests. This is all changing the country,
Speaker 4: even if it's not like visible immediately, it's it's it's
Speaker 4: it's a massive force. And I think this will also
Speaker 4: affect the direction of the country.
Speaker 1: All right, MATCHA, thank you so much for that really
Speaker 1: interesting conversation on a market that we don't often hear
Speaker 1: a lot about.
Speaker 3: Thanks for coming back on all thoughts.
Speaker 4: Yes, great, it was great. Thank you so much.
Speaker 2: Yeah, that was great, Thank you so much, really appreciate
Speaker 2: it and great chat.
Speaker 3: Super interesting.
Speaker 2: We'll chat with you again in three.
Speaker 4: Years, right right, yeah around teachers your patient right yo?
Speaker 1: Right, So Joe, that was really interesting and we'll have
Speaker 1: to talk to match again and I guess three years
Speaker 1: time to see what's been going on. But I thought
Speaker 1: the mention of apartments and used cars as speculative investments,
Speaker 1: I had never heard that before for a ran that
Speaker 1: was super interesting. And again his point that it was
Speaker 1: sort of like China, but actually now a lot of
Speaker 1: personal savings have been run down. I guess that makes
Speaker 1: a lot of sense given the situation recently.
Speaker 2: I thought that was an incredibly fascinating conversation because, yeah,
Speaker 2: I mean, there are some sort of basic macro principles
Speaker 2: that apply regardless of the situation the country finds. It's
Speaker 2: in this idea that corporations in Irun operate with higher
Speaker 2: stockpiles of raw materials and other inventories, the opposite of lean,
Speaker 2: which of course the.
Speaker 1: Corporate side of the personal savings rate, right, like you
Speaker 1: have to build your own cushion. Yeah, extreme uncertainty.
Speaker 2: In extreme uncertainty, you're not going to operate with sort
Speaker 2: of minimal Obviously, American investors want to see, Oh, get
Speaker 2: your inventory levels down, get your cash levels down, the
Speaker 2: fish every right, That's not the way any company is
Speaker 2: going to react in a country that's constantly buffeted by
Speaker 2: various geopolitical forces and sanctions and many unexpected things. The
Speaker 2: idea that there is this sort of beginning of increased relationships,
Speaker 2: maybe just pull it go so far, so far, but
Speaker 2: plugging into China and the bricks, et cetera, and maybe
Speaker 2: it just never happens that. I thought it was a
Speaker 2: very interesting conversation.
Speaker 3: Yeah.
Speaker 1: I liked your last question because I think, you know,
Speaker 1: maybe a couple decades ago, there would have been an
Speaker 1: assumption that a country like Iran would be absorbed into
Speaker 1: the global economy. You know, you have this booming population
Speaker 1: and the line of globalization was always going up. Yeah,
Speaker 1: but I think in twenty twenty three there's certainly a
Speaker 1: question mark around that, and it does seem like we're
Speaker 1: heading more towards those sphere of influences as you mentioned.
Speaker 2: Yeah, a few big spheres of influence, rather than an
Speaker 2: expectation that it all sort of funnels into one on
Speaker 2: one flow of capital around the world.
Speaker 3: Yeah, exactly, shall we leave it there?
Speaker 2: Let's leave it there.
Speaker 1: Okay, this has been another episode of the Odd Thoughts podcast.
Speaker 1: I'm Tracy Alloway. You can follow me on Twitter at Tracy.
Speaker 2: Alloway and I'm Joe Wisenthal. You can follow me on
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Speaker 1: In the e