Irans stock market is one of the bourses least correlated with other world markets and the more sanctions are imposed, isolating it further, the more it is surging.
By the end of August, the Tehran Stock Exchange had risen by more than 50% in 2010, with trading triple the volume of 2009. Total market capitalization has surpassed $80 billion, a record high.
This is despite both the EU and the UN imposing new sanctions on the country over the summer. It is also despite official statistics showing unemployment at a 13-year high of 14.6%, up from 11.1% a year ago.
The IMF expects Irans economic growth to stay at about 3% for the next five years. This compares with annual growth rates of 5% and higher before the crisis. The latest data from the central bank show annual inflation in Iran at 9.4% at the end of July.
Lack of alternatives
One theory is that the stock market is booming because of the lack of alternatives, especially as international sanctions make investment abroad more difficult.
Ramin Rabii, managing director at local investment firm Turquoise, says the central banks decision in April to allow local commercial banks to lower deposit rates has pushed Iranians to seek higher returns from the stock market. In addition, he says, the property market has been sluggish over the past two years after a surge in real estate in 2007.
The equity markets surge this year follows rises of 29% in 2009 and 0.5% in 2008. The last annual dip in the market was five years ago.
"The Tehran Stock Exchange is not correlated to the rest of the world, mainly because of the lack of foreign investment and dual listings," says Rabii. His own firms fund accounts for 90% of foreign investment in Iranian stocks.
Although some stocks are overvalued, especially after IPOs, Rabii reckons there is still no evidence of a bubble, as average prices are only 6.2 times earnings: less than half the P/E ratio reached in 2003.
Irans privatization programme is another reason for increased activity in the stock market, with minority portions of privatized firms ending up as free floats, available for trading on a day-to-day basis. The largest blocks in privatized firms often go to state funds and quasi-government entities, however.
The government agreed sales of portions of Irans biggest car firms, Khodro and Saipa, in July, although the deals have not closed. Post Bank, oil refineries and the national airline are slated for future sales. In the past two years stakes in the biggest banks have been sold and portions of these are now traded freely on the exchange.