The best opportunity to buy into the bull market in #Iranian equities since early 2019?
1. Stocks are oversold after a sharp pullback
Index down 47% peak to trough in USD (bazaar rate) over last 2 months. Numerous single stocks sold off by more than 65% in USD. Broad equity market is up 84% yoy, up 131% over the last 3 yrs and continues its long-term bullish trend
2. Big sentiment shift
In May/June retail investors were asking whether they should sell their homes and buy stocks. Now investors are sharing screenshots of their portfolios that are down 80% over the summer. Big sentiment shift signals that the selling pressure may be over
3. Rial got hammered
Iranian rial is down 55% vs $ YTD. Buying local stocks after a currency selloff has been a profitable trade: strong $ fuels earnings of the largest companies. Stocks were falling while $ was moving higher. Such divergence doesn't usually last for too long
4. Earnings are poised to skyrocket...
Recent monthly sales updates were stronger than expected - data reported so far for Sep point to a median 65% yoy revenue growth. We anticipate earnings to skyrocket and share prices to follow
5. ...bringing forward valuations down
Sharp selloff in equities combined with currency weakness and earnings growth improved the valuations. Median forward P/E for the basket of 100 companies is 9x-10x. Many good-quality, growing companies are trading at 5x-7x forward earnings
6. Retail-driven market inefficiencies
Iranian stock market has never been particularly efficient but the recent inflow of more than 4 million novice retail investors, that boosted daily liquidity from $100 million to $1 billion, vastly increased the arbitrage opportunities
7. Geopolitics may positively surprise
Odds are close but a change in the US approach would be a major development. A simple change in rhetoric would be enough for many large European and Asian investors to enter the country
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1/ "#Iran’s stock market outstrips global rivals" - timely update from @FinancialTimes although the article highlights only the drivers of that last year's rally, i.e. exporters of petrochemicals, steel, metals, which obviously benefitted from USD strength ft.com/content/62c734…
@FinancialTimes 2/ This year consumer-oriented industries are top performers with confectioners, retail and distribution, and beverages leading the way with YTD returns of 400% or more. Diversified chemicals, metallic ores, and steel industries are actually among the worst performers in 2019
@FinancialTimes 3/ While exporters benefit from USD appreciation, their volumes are going down due to sanctions. On the other hand, domestic companies are the biggest winners of sanctions because their foreign competitors are gone.