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One thing we have learned in all our episodes looking at the Iranian stock market, and there have been a couple, yes, but one thing we've learned is that Iran is actually the thirty seventh biggest economy in the world by nominal GDP. Can you guess like another economy that is roughly that size?
Oh that's a really So what is roughly similar to the Iranian I don't know, go on.
Okay, well one of them is Denmark, so you know that's pretty big. But then when you start looking at things like geographical size, Iran is I think the seventeenth biggest country in the world by geographical size. It has a lot of people as well, so you know, similar to Turkey in terms of post I know you.
Know, I know the population now, Oh well yeah, because Ted Cruz got stumped on it when he went on Tucker Carlson Show. So we all know that Iran has a population of around ninety million. No one, no one, yeah, he should have. No one is ever going to make that mistake again.
That's right. That should have been my first question.
Can I say something when there's geopolitical events happening in the world on a weekend when nothing is treating so one that you can look at what crypto is doing. But every once in a while, when I'm in true market siico mood, like I'll actually check, like, oh, what is the Saudi market doing on a Saturday, or what is the tel Aviv market doing on a Sunday?
There are siico mode that's just being international.
Well, we're supposed to have the weekends to not be looking up, but most of the time they're not. Every point is everyone's in a while, like I'm gonna check in and see how tel Aviv is trading on a Sunday or something like that. That's how that's how you know something is happening.
Yeah, But the one market that you can't really look up, that's right is Iran stock market and the Tran Stock Exchange specifically, which again, as we know from previous episodes, has more than six hundred companies and is worth I think it was almost one hundred billion dollars. I don't know if it's still that much, but I'm always brilliant.
Around one hundred and fifty billion dollars one.
Hundred and fifty Oh wow. Okay, we're speaking with Matya Voutal. He is CEO and CIO of Antlon Capital, which is an Amsterdam based fund manager which specializes in Iranian stocks. He's been on the show a couple of times before, and we thought we would talk to him again just to try to get a sense of what's going on in terms of Iran's economy and it's stock market.
What is going on if I can just comment on one thing, because the way you introduced your own is the perfect way to show the country. It's the size of Turkey in terms of population and actually geographical size as well.
But if you.
Compare the economy of an Iran, it's around five times smaller.
So Iran is around five times smaller.
And if you look at the composition of the economy, Turkey has no natural resources, so they have to import the whole energy commodities they consume and so on. Iran has the similar size of potential non commodity GDP that it could grow to. So from the current let's say two hundred and fifty billion to one point one trillion GDP that Turkey has, but also on top of this has resources that are actually if you combine gas and oil, they are bigger than Saudi Arabia's and Saudi Arabia is
another one point, I think three trillion dollar economy. So this is a good way to just frame Iran as to show Iran, as you know, it's a big country that should really be having much bigger economy. Because of sanctions, various reasons and so on, it's been underdeveloped.
But the scale of this underdevelopment is like ten x wow.
And because of the sanctions, we can't actually go and look up what's happening in Tehran's stock market, So why don't you give us an overview of what it's been like for the past week given geopolitical events.
So for the past week, it was difficult for everyone to check what was going on in Iran because internet was shut down basically, so I could communicate with my team on the ground in Tehran once a day when they had signal, and sometimes it was what's up that was working, sometimes telegram, but it was maybe once or twice per day. So what was going on in the market was simply nothing. So the stock market hasn't opened.
The shange of fire between Iran and Israel happened on a Friday, which is weekend in Iran, and then on the following Saturday there was an important religious holiday, so the market and actually the whole economy was supposed to be closed anyway, the economic activity the market was supposed to resume on a Sunday, but they didn't open, so the market, the stock market, pretty much most of the currency market has been closed for the last two weeks.
Assuming out for a second. Actually, there are two early things that strike me. One, this is true frontier market investing when you're in a position in which you literally cannot easily communicate with your team on the ground because there are a lack of internet or lack of communications.
But it strikes me that in some sense this is what the fund manager gets paid for, because for many reasons, including the fact that it's not trivial to look up data or even access to these markets, a lot of investors are never going to be participating in this market. And then you layer in on all these additional complications like this is essentially, at least in theory, the deep risks that in theory you get compensated.
For Yeah, you get compensated for actually giving access to the market because it's very difficult or impossible to get access at this moment as a non resident team run to the local stock market. But also you get paid
for solving all the operational programs. You know, we have quite a long track record in Iran and the main thing actually that we are really proud of because investing when everything is priced for war is fairly easy, right, And also you have a market that is very inefficient because it's driven by retail investors, Like ninety percent of daily flows are coming from retail. So there is a lot of alpha, a lot of inefficiencies that you can harvest.
But the real issue is our operations. One thing is due diligence. I mean, you know a lot of sanctioned restrictions which are not on the whole country, but we're related to many different entities, sectors.
And so on.
So you have to do due diligence on every single decision you're taking, before every decision you're taking. But also you need to solve the problems. For example, the problem of changing currency making transfers. Iranian banks are not connected to the Swift system there are specialized banks that actually do for example, payment for humanitarian trade with Venezuela right or Iran, so food medical devices.
This is never under sanctions and you need to be able to pay for it.
But those transfers take like nine months to execute, right. I remember we once had to process a payment for it like a very very official way. We had to have the signature of the actual minister in Iran approving the payment, right, So it took.
Nine months al together. But there are other ways.
There are other corridors, payment corridors that across emerging markets
and including Iran, that make it much more efficient. So for example, right now, when you have the stock market, the currency market were shut down, but you could track the exchange rate, what's going on with the exchange rate of the Iranian real versus dollar, either on telegram chats but also oncurrency exchanges, so you have you know, liquid market on stable coins versus Iranian real inside of Iran, where well liquidity was limited during the last period anyway,
but we could see the changes, so we knew that one dollar before the war was at around eight hundred thirty thousand reals per one dollar. Then it went up roughly fifteen percent to nine hundred fifty thousand, and now after the ceasefire it's back down at eight hundred fifty thousand. So you can track the market, you can actually make transactions depending on on the liquidity.
But it is possible.
And to be honest, I mean when I saw those exchange rates moves fifteen percent, when you have a war where a lot of commentators were saying that this could turn into a massive worldwide conflict, that fifteen percent in a country like you run, I would say that this is.
Your usual volatility on the currency market.
Wait, so when you're talking to your team on the ground, when you can get hold of them, what are the questions you're asking them exactly? Because the markets are closed, so presumably you're not marking your portfolio to market on a daily basis, But what information are you trying to get?
Well, the first few days, the only information I was interested in was if they were safe, to be honest, because you know, the the what residents of Tehran and some other cities experience was they've never experienced just explosions in the city.
It's like the older Iranians compared it to the eighties when Iran was fighting Saddam Hussein in Iraq. And this is when you know.
The last last time, when when someone was firing missiles at Iranian cities.
So after a.
Few explosions that were too close to home, they basically evacuated. They moved to smaller cities. And this was a big trend in Iran. So in Tehran, a lot of residents were just relocating out of Tehran. Tehran is a big city, it's like twelve million people and they were moving mainly north to some smaller cities by the cast and sea.
So you had massive congestion.
People were spending hours in traffic jams trying to get out of the Tehran. There was not enough petrol on gas stations just because of this peak in demand. You had some petrol rationing and then I was as them, okay, so is the economy working?
Not working? So everything that was non essential basically was closed.
So you couldn't I don't know built by building materials or if you make this, but groceries, pharmaceuticals, gas stations, banks, This was all open and working properly with some disruptions. But those disruptions, for example, if you wanted to buy groceries in north of Iran where everyone has just relocated. You had some bottlenecks, logistical bottlenecks, so distribution was not fast enough. So you had some shortages just for a little while with banks when some branches were not operating
a one hundred percent capacity. But two banks got hacked, so you had some cyber attacks on two banks that you ran, and one cryptocurrency exchange. The rest of the banking sector was working without any disruptions.
You could get cash.
From many atm so there was there were no problems like this. So these are the questions about everyday life. And then, very importantly, had any listed companies reported any damages? Right that? Has there been any destruction to civilian infrastructure important for the riding economy.
It's pretty crazy how hard it is apparently to get data. I'm actually at the tront stock Exchange Wikipedia page, and whoever maintains that page hasn't updated the number of listed companies as two thousand and nine, and there's a stock market chart here that goes to twenty fourteen, setting aside the last couple of weeks. How have Iranian stocks been doing the last year or a couple of years.
Yeah, So Iranian stocks.
You have to observe it in US dollars or in any hard currency, right because in local currency obviously doesn't tell you anything. If you looked at the stock market in Zimbabwe when Zimbabwe was going bus the stock market was performing amazingly in nominal terms in local currency terms,
but obviously in dollars it was going to zero. And it's interesting because, Okay, there is information, very up to date, detailed information on Iranian stocks available in Iran, but the majority of this information is not accessible if you're trying to access it from a computer with your IP address outside of your so a lot of this information is restricted to Iran IP only, but you cannot find anywhere on the whole Internet.
Right, there is no website that.
Shows the stock market index in dollars. So when we send it out to our investors.
Or just people who.
Want to read news about the stock market in Iran, we are the only source of this information.
This is quite amazing.
I mean, it's a country of nineteen million people and you know stock market with seven hundred companies, and there is no single place in Internet that would show you the only important index.
Right, Yeah, that's really stunning. Okay, So when I think of the Iranian stock market, I think of two things. I think oil and then I think geopolitical risk. How does the market typically handle or what do those exposures actually look like and do when there's a big event such as what we saw in the past week.
So in terms of oil, oil is not really publicly traded. There is one Iranian monopoly called National Iranian Oil Corporation or company that is responsible for production.
Yeah, I think this is all centralized in one company, and this is held by the government, so it's not publicly listed.
You have some exposure to oil through oil refineries that are listed, but refineries don't trade. They're not sensitive to the price of oil. They are sensitive to the to the crack spread, right, which which defines their margin on the refining margin, so they are not really per proxy to oil prices. The whole stock market actually is will diversify, so you have you know, large sectors such as chemicals. Mainly these are like petrochemicals, I don't know companies that
produce different products different versions. Use natural gas that is in large supply as a cheap commodity and produce fertilizers or products like this right, so this is probably twenty percent of the stock market. Then you have steel companies. The largest steel company in the Middle East is in Iran. You have car makers that produce around one million cars, more than one million cars a year. So with car manufacturers you have all the related industries suppliers you know,
to the car manufacturing businesses. You have banks, financials as an important sector, plus some consumer exposures, some building materials, some man companies are one of the best performance performance over the last few years. Actually, yeah, so it's a well diversified stock market like you ran an economy.
Well, sorry, just to follow up on the question before. In usd terms, generally, how has the Tehran stock market been performing? Setting aside the fact.
That sorry I didn't ask the question. Yes, so over the last I don't know, eight years, I think. So, let's say since the US and you ran signed the nuclear deal back in twenty sixteen, so almost a decade ago, it should be roughly double that level.
Right now, So we doubled since then.
But in the meantime there's been quite a lot of roller coster So right in stocks in dollar terms are three times lower right now, around three times lower compared to the level back in twenty twenty. So if you compare to August twenty twenty when there was a peak of a local let's say, bull market and a bubble, right now stocks are around three times lower than that in dollar terms, and that's the main reason for that.
Over the last two years has been the sentiment.
Because twenty twenty three started to really well for the region. There was this historical breakthrough agreement between Saudi Arabia and Iraq. Both countries decided that they don't want conflict. They it was basically like a peace treaty. They opened up embassies in both countries and that was huge because Saudi finance minister was talking about investment opportunities in Iran.
Iran and exporters were.
Hoping for new export markets to open up in the region from Egypt to Saudi Arabia to whatever, all the countries around.
So there was like a very positive moment.
At the same time, by the administration was negotiating with the former Iranian government, so everything looked really really promising.
Instead, obviously what happened in.
October was Hamas was Gaza, and that changed everything, like sentiment collapse and no one really wanted to look at any risky assets in Iran. So you had a situation where profits were going up. When you're looking at Iranians enlisted companies, profits continue to grow, but the stock market was going down. So obviously evaluations are just cheaper and cheaper and cheaper. But everyone was focused basically on the potential for the regional escalation rightfully so, and.
Not on you know, taking risk in their portfolios.
So just a big picture from your perspective, because thinking back to your first answer where you talked about, Okay, here's in theory what some comps could be and it could look like Turkey, or it has resources potentially unscale
with Saudi Arabia. How much of the bet so to speak from your perspective is what people would say, like the option value from something happening, either it's a major softening between Iran and the West, perhaps regime change, something that triggers the big unlock, Like how much in your mind is it about it? At some point something will reset and some end that massive opportunity could actually be tapped.
So you're asking about the potential of this opportunity.
Yeah, Like basically like they didn't like basically Okay, it's going to move around. There's sentiment here and there, but that at some point down the future that actual opportunity to be an economy and be a market on the scale of a Turkey could one day actually realize through some some switch that gets flipped.
Look, this is probably, I mean, from my perspective, the biggest optionality in enlisted markets, in public markets that you can find.
Yeah, because one thing is GDP and GDP the.
Way I look at GDP currently, I mean if you google it, it say it's around four hundred billion dollars, we think it's more like two hundred and fifty billion dollars. It depends on the exchange rate that you used to calculate it. So let's say Iran is two hundred and fifty billion dollars GDP, and now Iranian non oil economy, non commodity economy, if everything goes well, could be as big as Turkey, and Turkey is one point one trillion, and this is without any commodity.
But do it need to be do it need to be an event like something would need happen?
Right?
Is right? Catalyst? Yeah? Absolutely, yeah, the catalyst is clear. Right, Okay, I'll get back to the potential for GDP in a moment. But the catalyst is absolutely clear.
It must be the opening up of Iran as a country and opening up of the economy and sanctions lifted, the US sanctions lifted, right, so there must be an agreement between the US and Iran.
And what needs to happen well some sort.
Of political change, so political attitude must change on both sides. But to be honest, many analysts were expecting some big dramatic event that needs to happen in Iran for the country to properly open up. And when you look at Iran right now and you compare to let's say even a few years ago, when you had negotiations with the US, what were the biggest problem was?
It was always about two things. Iran and reaching uranium too much basically at the wrong level.
And the second Iranian region policies right, so financing proxies from Hesbolau to Hamas you know those assad in Syria and so on, right, So these two things were always the problem that they couldn't negotiate over. When you look at it right now, well, to an art extent, both obstacles are gone. So potentially this opens up a path to an agreement, an agreement like a proper agreement, so not the type of nuclear agreement that was signed under
Obama administration, which was never strong enough. And I think both Americans and Iranians understand this. I mean, proper agreement that lists sanctions US sanctions two and opens up the country to everyone, to including like US investors if.
They want to tap into the opportunity.
And I think, I mean, it seems that this is the thinking in the US that if we do it, we do it properly. And I think, I mean not that, I think, I mean, what's what we've been hearing from on the Iranian side, Like a few weeks ago when they were still negotiating, it was the same thing that they were showing Iran the whole economy as a big opportunity, like a trillion dollar opportunity, right or two trillion dollar opportunity.
I mean, it's a massive opportunity for all the investors.
So this is the trigger, this is the catalyst then will unlock this optionality, this potential of you run growing GDP from the current two hundred and fifty billion two in some perfect scenario to two point three trillion dollars, which would be a combination of Saudi and Turkey CDP obviously if everything went well well.
But the other thing that's been happening over the past week is we've had reports of an internal crackdown in Iran and people getting arrested and things like that. And when I think internal crackdown, I think hardening of capital controls, which Iran already has. What are you hearing on that side of things, because presumably that would make your life, your job even harder.
Look, capital controls have been in place for Iranian entities for some time. When it comes to foreign investors, it's obviously difficult to access, but everyone who is there and you have some really really large one of the largest Swiss companies, German companies, Japanese, French companies still there, not increasing their scale of their operations, but just sustaining what they've had for the last twenty.
Years there, and they are welcome. Same with investors.
I mean, Iran desperately needs capital in the form of Verdi ideally, but portfolio investments as well channel funding through the stock market to local private companies. So this is badly needed and Iran is aware of that and understands. This offers government guarantees. We have the same guarantees as all the big European companies that are present there against extropriation of assets and so on and so forth.
So it's not.
That you're not welcome as a foreign investor. Quite quite the contrary. There are programs that are designed to make your life easier. You could even actually if you invest I don't remember it was around two hundred thousand euro dollar equivalent, you get a residency in Iran if you're interested in this for five years.
I think so.
There are many, many programs designed specifically for foreign investors to make the local market more attractive.
In terms of capital.
Controls for local residents have been always in place, so limits on how much of foreign currency they are able to buy and for what purposes. Right, so, if you want to send your child to school in the US or somewhere and you have to pay for education, this has like different quotas.
Right.
If you want to travel, this is different, but it's very very formalized and bureaucratic.
Other tech companies that trade on the turn stock market.
There are tech companies.
The ones that are that are listed are related to enterprise software.
Or sub German. Yeah, SAP. But you have privately held companies.
That would like to IPO, but they are just waiting for the approval from the regulator. And these are quite amazing companies. You have Snap, which is like an Uber, but Snap has more rights in Tehran than Uber in any city in the world.
It's a really world class company. You have Dijkala, which is like a like.
Amazon basically also a large company, one of the biggest success stories. And many, many, many smaller e commerce companies that are in the private market.
We'll look out for them.
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