International Herald Tribune

Paul Hughes

Thursday, May 06, 2004

Tehran bourse awaits an opening

The Tehran Stock Exchange, one of the best-performing in the world last year, wants to let foreign funds in, but the enabling regulation may take a little time, according to the head of the exchange.

Lifted by high prices for oil, Iran's economic staple, and an influx of capital from Iranian expatriates, Tehran's all-share TEPIX index soared 116 percent last year. Market capitalization more than doubled to $34.4 billion.

But aside from about a dozen Finance Ministry-approved strategic share acquisitions by foreign companies, the bourse has until now been off-limits to outsiders.

A proposed E30 million, or $36.19 million, fund run by Cairo-based EFG-Hermes Asset Management, which had attracted interest among Gulf and European investors, was canceled in November after the Iranian government refused permission. Treading cautiously, the exchange's secretary general, Hossein Abdoh-Tabrizi, has proposed a by-law that would admit institutional foreign investors. The regulations were presented nearly a year ago but were still awaiting approval from the exchange's High Council.

Abdoh-Tabrizi had previously predicted that the go-ahead would be given before the end of this past March. Now he is more cautious.

"I don't want to make predictions, but hopefully in another two or three months," he said.

The regulations would cap foreign investments to a maximum of 10 percent of the market - around $3.7 billion at present - and bar repatriation of capital for three years. Individual foreign investors would remain excluded from the bourse.

With a doctoral degree from the Manchester Business School in Britain and years of experience in Iran's state-dominated financial sector, Abdoh-Tabrizi has spent much of his first year in charge of the bourse dampening speculation about an imminent crash.

He has also had to find ways to slow the exchange's breathtaking pace of trading growth without prematurely slamming on the brakes. New measures adopted last year have helped, including the use of a weighted average instead of last price to determine closing prices.

But the party is not over yet. "I'd be happy with growth of around 40 percent, which is what I expect it will be this year," Abdoh-Tabrizi said.

Analysts seem to agree that the bourse, where the benchmark index has risen 8.2 percent in the first four months of 2004, has not peaked.

"In any other market, when your taxi driver starts giving you stock picks, it would be time to sell," said Albrecht Frischenschlager of Atieh Bahar, a consulting firm. "But it remains an interesting market for another two to three years."

Abdoh-Tabrizi talks passionately about the need to divest more of Iran's state-owned assets to the public through privatization to bolster the middle class. But he acknowledges that some 50 percent of assets on the bourse now belong to state or quasi-state institutions, like banks or the social security system.

"Every stock market has institutional investors, so it's good that we have 50 percent institutional investors," Abdoh-Tabrizi said. "But it's bad when that 50 percent is all government-related."