Speaker 1: Hello, and welcome to another episode of the All Thoughts podcast.
Speaker 1: I'm Tracy Allaway and I'm Joe Wisenthal. So, Joe, we
Speaker 1: had a pretty eventful week in markets recently. Yeah, pretty
Speaker 1: extraordinary start to the week are really or I should
Speaker 1: say the start to the first trading day of the
Speaker 1: year was really strong, and then almost immediately thereafter, we
Speaker 1: got the news about the Iranian general being killed, and
Speaker 1: suddenly that has been the focus of markets in repercussions
Speaker 1: of such So the Trump administration killed around top general
Speaker 1: Cassim Solomoni, and then that knocked markets immediately. But then
Speaker 1: a few days later you had Iran retaliating against that
Speaker 1: killing by fire orring a series of missiles at US
Speaker 1: Iraqi air bases in Iraq, and that caused yet another
Speaker 1: sell off. I think at one point US equity futures
Speaker 1: were down something like one point seven and we saw
Speaker 1: gold spike up to a six dollars per ounce. But
Speaker 1: did anyone ever stop to ask what was going on
Speaker 1: with Iranian stocks at that same time? I certainly did
Speaker 1: not stop to ask that question, and I did not
Speaker 1: think about it for various reasons, which will get into
Speaker 1: one point that I we should just make before moving on,
Speaker 1: is that part of what's been interesting about US markets
Speaker 1: has been the degree of resilience. So even with all
Speaker 1: these headlines that totally called people by surprise, and we
Speaker 1: have markets your record highs, the volatility and the headlines
Speaker 1: haven't driven domestic US markets sustainably lower. In fact, as
Speaker 1: of this moment, there basically at all time highs. Yet
Speaker 1: again quite surprising to some. But you're totally right that
Speaker 1: there has been much less focus on regional stock markets,
Speaker 1: including the Tehran Stock Exchange, which exists but which gets
Speaker 1: virtually zero discussion. Well, I'm being somewhat facetious because I
Speaker 1: think everyone knows why we don't talk about Iranian stocks
Speaker 1: that much, and that's because of U S sanctions, of course,
Speaker 1: and the fact that that particular market and economy, UH
Speaker 1: and country really is cut off from large parts of
Speaker 1: the world. But there is a Taran stock exchange, there
Speaker 1: is a stock market, and I think it would be
Speaker 1: really really interesting to find out exactly what happened in
Speaker 1: that market over the past week or so, and also
Speaker 1: just find out generally how it works. Not only do
Speaker 1: you have geopolitical risk, but you also have these really
Speaker 1: stringent sanctions. Yeah, no, I I've you know, I'm aware
Speaker 1: of the market exists, but I don't know anything about it.
Speaker 1: I don't know can invest in it. I don't know
Speaker 1: how liquid it is. I don't know how much retail
Speaker 1: participation or what are the big companies. I literally know
Speaker 1: nothing about the Toronto Star Exchange. Right, Well, let's find out.
Speaker 1: We have the perfect guest to walk us through it.
Speaker 1: It's match avoid Teel, who runs the only European asset
Speaker 1: manager focused on Iranian stocks company called Amtalon Capital. Match it.
Speaker 1: Thank you so much for coming on. Hi, thank you
Speaker 1: for having me. So, I guess the obvious question to
Speaker 1: start out with is how did you end up in
Speaker 1: this space? Because I don't think your name sounds very Iranian.
Speaker 1: Oh no Muchie is a typical Polish name. So um,
Speaker 1: I'm from Poland race in Warsaw, moved to London when
Speaker 1: I got my first job in JP Morgan, and I've
Speaker 1: been there ever since, and I had zero connection to
Speaker 1: you run. So what caught my attention? It's obviously the
Speaker 1: irun deal that was signed in two thousands fifteen and
Speaker 1: implemented in two thousands sixteen. I also was just aware
Speaker 1: that there was a stock market in Irun. Because we
Speaker 1: used to run global equity long short portfolios across developed
Speaker 1: an emerging market, so including places like Kenya, Vietnam, China, Asias,
Speaker 1: a lot of different like niche markets, and Iran was
Speaker 1: always there is something potentially interested, interesting, but we couldn't
Speaker 1: touch it, so so no one did anything. And then
Speaker 1: when in two thousand and sixteen the country opened up
Speaker 1: for well pretty much everyone except for US investors, I
Speaker 1: got interested. I did some research. I realized that there
Speaker 1: is a proper stock market. And this is what got
Speaker 1: me really excited, because you know, there is this huge
Speaker 1: potential growth story for Irun as a country of you know,
Speaker 1: eighty three million people, educated young population with wages right
Speaker 1: now lower than in Vietnam, with you know, diversified economy
Speaker 1: with the largest oil and gas reserves in the world,
Speaker 1: but this is only fifteen percent of g DT. You know,
Speaker 1: it's a good thing about being under sanctions for so
Speaker 1: long that they had to develop all the different sectors
Speaker 1: of the economy. But then for me um as a
Speaker 1: portfolio investor, what was exciting is that there is a
Speaker 1: stock market with six hundred stocks listed, hundred thirty billion
Speaker 1: dollar market cap and daily liquidity of roughly hundred fifty
Speaker 1: million dollars per day on average UM. So it's a
Speaker 1: proper market. And the best thing is was that you
Speaker 1: had the lowest valuations in the world. We're talking about
Speaker 1: you know, four times earnings and these learnings are growing.
Speaker 1: And there are no foreign investors so or foreign money
Speaker 1: that got invested. There was less than half a percent
Speaker 1: of the market cap. So you know, when I when
Speaker 1: I when I saw all this, I just told my
Speaker 1: wife basically that I bought a ticket to tear Run.
Speaker 1: I didn't know anyone there, so I just arranged a
Speaker 1: couple of meetings with the local brokers when they're you know,
Speaker 1: opened accounts for myself, tested everything with my own money.
Speaker 1: It worked, so I decided to set up a fund
Speaker 1: that would be focused on this particular opportunity. So let's
Speaker 1: talk about the restrictions on who can invest. You're based
Speaker 1: in London. Anyone in Europe is allowed under current sanctions
Speaker 1: regimes to invest, but I take it in the US
Speaker 1: it's completely off limits. So you have two most important
Speaker 1: types of types of sanctions. Primary sanctions that say that
Speaker 1: US persons cannot touch you run. We cannot accept investments
Speaker 1: from US investors. We as a fund cannot use US
Speaker 1: dollar or US banks. And then you have secondary sanctions
Speaker 1: which say that no one else should do business with
Speaker 1: a long list of certain entities, both individual and corporate
Speaker 1: entities that are on the s d N is on
Speaker 1: the sanctions list. And also there is a list of
Speaker 1: sectors or activities that you shouldn't be doing, like you know,
Speaker 1: physical training in oil obviously, so you know, big part
Speaker 1: of our job is studiolitis actually, and we have you know,
Speaker 1: we have a special you know, Washington based sanctions lawyer
Speaker 1: that is telling us what we can do, what we
Speaker 1: cannot do. There's a lot of work investing in Iran.
Speaker 1: It's actually before you actually get to invest, you have
Speaker 1: to do a lot of legal work. And then investing
Speaker 1: itself is actually easy. So who does your typical client
Speaker 1: end up being? Like, can you give us a sense
Speaker 1: of who they are? But also what are they looking
Speaker 1: for out of the market? Is it, you know, is
Speaker 1: it a steady stream of dividends? Because capital appreciation seems
Speaker 1: kind of difficult when you're cut off from a big
Speaker 1: chunk of the amount of capital in the global economy
Speaker 1: that will be surprising to hear, but this is actually
Speaker 1: the best performing equity market of two nine nineteen. Sorry,
Speaker 1: and in dollar terms. So last year the main index
Speaker 1: of Terrem Stock Exchange doubled or precisely went up by
Speaker 1: in dollar terms. And when you check Bloomberg for example,
Speaker 1: for the you know, you start all the indices by
Speaker 1: the performance. You don't see it because it's not in
Speaker 1: your database. But but yeah, that's but that's that's that's
Speaker 1: the reality. So it's actually the best performing equity market
Speaker 1: that no one knows about. So you are looking for
Speaker 1: capital gains, absolutely there. So who are the clients than
Speaker 1: that that are that are interested in the space? So
Speaker 1: I get the return, But you still have to have
Speaker 1: this conversation about investing and what a lot of people
Speaker 1: would consider a relatively risky market. Oh yes, absolutely so,
Speaker 1: first of all, all the investors that we have our
Speaker 1: high network, individuals from across Europe. It's too early for
Speaker 1: institutions to to get into the market, and all of
Speaker 1: these investors are very aware that you know, it's it's
Speaker 1: it's not a relatively risky market, it's the very risky market.
Speaker 1: I mean, investment risks are actually quite limited. I mean
Speaker 1: when you're buying assets at four times net earnings and
Speaker 1: those earnings are growing in you know, high double digits
Speaker 1: every year. Investment risks are low, but you have geopolitical risks.
Speaker 1: I mean it's not only run, it's it's the whole
Speaker 1: Middle East. But you are getting paid a lot to
Speaker 1: take those risks. I mean even if you invest in
Speaker 1: in local treasury bills. I mean right now these are
Speaker 1: on on sign on the sanctions list that you wouldn't
Speaker 1: be able to but local investors get paid two on
Speaker 1: short term government bills. You have dividend fields off you know,
Speaker 1: between ten and twenty percent, So you can very often
Speaker 1: find companies like utility companies that pay you twenty percent
Speaker 1: dividend fields. But the biggest opportunity is in the companies
Speaker 1: that grow their earnings. So all of the last year's rally,
Speaker 1: which was super counterintuitive because you know, it was in
Speaker 1: such a big contrast to the headlines that you you know,
Speaker 1: kept on receiving about I run about the GDP about
Speaker 1: you know, oil exports going down, but oil is not listed.
Speaker 1: I mean you have a couple of refineries listed, but
Speaker 1: oil exploration is not listed. What is interesting are first
Speaker 1: of all exporters and mainly regional exporters. So when you
Speaker 1: look at you RUN, it's eighty three million people, but
Speaker 1: you RUN plus neighboring countries is four hundred million people,
Speaker 1: and you RUN is well placed to expert to those countries.
Speaker 1: For example, countries like you know, Iraq and Afghanistan, they
Speaker 1: have seventy eight million people and don't produce much, so
Speaker 1: they have to import a lot of the stuff that
Speaker 1: they consume, and they do it very often from Irun.
Speaker 1: So this is one thing. But actually the biggest beneficiaries
Speaker 1: last year of sanctions and of the currency depreciation that
Speaker 1: happened the year before were domestic companies. Why because after
Speaker 1: Iranian real so the local currency went down in two
Speaker 1: thousand and eighteen by seventy and then addition of sanctions
Speaker 1: made trade even more difficult. So you know, it was
Speaker 1: difficult to process payments, to find you know, shipping, so
Speaker 1: the logistics were difficult, insurance and so on. So imports
Speaker 1: collapsed and whatever you know, cheap products were being imported
Speaker 1: from China, they were no longer competitive and it was
Speaker 1: more difficult to get them to be run anyway, So
Speaker 1: local producers started gaining market share and we could see
Speaker 1: that both you know, volumes were going out for the
Speaker 1: local companies and they were able to raise prices faster
Speaker 1: than the inflation. So actually the domestic companies And and
Speaker 1: then when I when I was speaking about domestic companies, it's, uh,
Speaker 1: you know, our best positions, best performing positions were you know,
Speaker 1: a shampoo maker and chocolate biscuits producer, and those were
Speaker 1: the types of companies that gained the most. And this
Speaker 1: is not exactly the type of investment that you're thinking
Speaker 1: about when you, when you know, go to invest in
Speaker 1: your run. God, I already I have so many questions
Speaker 1: just listening to that. I'm already so fascinated. One thing
Speaker 1: that I'm always sort of interested in when people invest
Speaker 1: in sort of extreme emerging frontier type markets that are
Speaker 1: well out of the mainstream is data quality. So first
Speaker 1: of all, as you noticed, like I can't even pull
Speaker 1: up a torn stock exchange quote on on my Bloomberg
Speaker 1: from your perspective from your seat in London, how confident
Speaker 1: and how difficult is it to get transparent data on
Speaker 1: both sort of trading volume the exchange and companies themselves
Speaker 1: to the point where you can like feel confident that
Speaker 1: you have a good handle on who's doing what and how. Well. Yeah,
Speaker 1: so that's that's a very important point. And I was
Speaker 1: really surprised when I started looking at the local data.
Speaker 1: So Bloomberg obviously doesn't cover it. So so I no
Speaker 1: longer have a Bloomberg terminal along my desk, but I
Speaker 1: have like a local UM not a Bloomberg equivalent, but
Speaker 1: databases in English that where I have quotally financial data
Speaker 1: for the last twenty years for four hundred biggest stalks,
Speaker 1: plus obviously all the price data, everything in English and
Speaker 1: U you know, easy to use format. Let's say, maybe
Speaker 1: not similar to Bloomberg. This direction is that the Iranian
Speaker 1: domestic competitor to bloom That's too much to say, I guess,
Speaker 1: but they would love to hear that. Yet, what's it
Speaker 1: called UM? It's called UM, It's called boors View the
Speaker 1: Google Yah. So so so this is one good source.
Speaker 1: And then but in terms of the quality of the
Speaker 1: data itself, companies have to report audited, quartally and annual reports,
Speaker 1: just as they are reporting in Europe or the US.
Speaker 1: They have local accounting standards, but they are moving towards
Speaker 1: international financial reporting standards and the local ones are easy
Speaker 1: to read anyway, But there are two interesting things here.
Speaker 1: So first of all, okay, you may see the data,
Speaker 1: the numbers, but at the back of your head, you
Speaker 1: you you you have to remember that maybe you should
Speaker 1: not be trusting all the numbers that you're looking at, right,
Speaker 1: And I did invest in China a lot in you know,
Speaker 1: Chinese companies listed in Shankai, even worse where Chinese companies
Speaker 1: listed in Singapore, and and and and so a lot
Speaker 1: of fraus so so, so I was quite quite cautious here.
Speaker 1: But look, imagine that the company is showing you these
Speaker 1: were our sales last year, this was our net earnings,
Speaker 1: and our payout ratio with so we're gonna pay out
Speaker 1: most of our net earnings, almost all of our net
Speaker 1: earnings as dividend. And then you're getting this dividend, receiving
Speaker 1: this dividend into your account, so you know this is
Speaker 1: something real, right, So you can no longer question whether
Speaker 1: the net earnings figure was was right or wrong because
Speaker 1: you actually received most of it as dividend and and
Speaker 1: and most companies have very high dividend yields and and
Speaker 1: pay out ratios. So this valid date is the data Moreover,
Speaker 1: what I get there is something is actually something that
Speaker 1: I don't get another markets, which is monthly sales data.
Speaker 1: So all the big and medium sized companies are required
Speaker 1: to report on the monthly basis revenue across their main
Speaker 1: product categories and split into volumes and unit prices, which
Speaker 1: is a lot of data that you can analyze and
Speaker 1: and then and after two months you pretty much know
Speaker 1: what to expect from the next quarterly earnings. And the
Speaker 1: best thing is that not many people are doing this
Speaker 1: this work in iround. Why because you know, almost all
Speaker 1: the local investors are retail investors to think of China
Speaker 1: A shares or Vietnam. Before funds started investing there has
Speaker 1: literally almost all of the local investors are non sophisticated
Speaker 1: retail investors. So everyone is pretty much you know, short
Speaker 1: term momentum right without trying to analyze stuff, trying to
Speaker 1: focus any numbers. So what we're doing is actually, you know,
Speaker 1: pretty simple work. I mean, we're just the real work,
Speaker 1: building models, analyzing hundreds of data per month for most
Speaker 1: of the companies. And it's great because for a professional investor,
Speaker 1: you know, you do your work and you get rewarded.
Speaker 1: So I mean, one of the big differences between being
Speaker 1: a domestic retail investor versus you know, sophisticated international investor
Speaker 1: is the currency conversion. How big a factor is that
Speaker 1: for you when it comes to your investment strategy And
Speaker 1: how difficult is it to get money from Iran converted
Speaker 1: into other currencies and other accounts outside of Iran. Yeah,
Speaker 1: so exchanging money is not an issue. There is maybe
Speaker 1: right now it's better, but over the last previous two years,
Speaker 1: there was a bit of a chaos with the exchange rates.
Speaker 1: So you had, you know, three different exchange rate that
Speaker 1: we're making. You know, even the locals got confused in
Speaker 1: terms of which one to use and which one they
Speaker 1: should be using to value investments and someone. So, um,
Speaker 1: you have the official rate, which basically no one is
Speaker 1: using because this is a subsidized rate to import certain
Speaker 1: pharmaceutical and agricultural goods. Then you have the NEMA platform rate,
Speaker 1: which is where all the exporters and importers are required
Speaker 1: to exchange their currency and this is where the biggest
Speaker 1: liquidity is. And then you have the bazaar rate where
Speaker 1: all the individual Uranians without any limits, they can they
Speaker 1: can just trade usually you know, physical dollar bills right
Speaker 1: on the bazaar, which which is super volatile, not very
Speaker 1: liquids or whenever there is like a panic which we
Speaker 1: saw many times over the previous year, and you know,
Speaker 1: they were rushing to the bazaar to buy you know,
Speaker 1: physical dollar bills and h and hide them under the mattress.
Speaker 1: So right now, because after two eighteen when the currency
Speaker 1: dropped by seven percent, two nineteen was stable and so
Speaker 1: stable in terms of the currency, stable in terms of
Speaker 1: actually got better in terms of economic activity because uncertainty
Speaker 1: related to the U S sanctions went down and this
Speaker 1: started feeding into the company's earnings. Hence the boolmarket in Iran.
Speaker 1: But so so trading currency and all the exchange rates
Speaker 1: I mean the NEMA rate and the buzz A rate converged.
Speaker 1: So right now there is not much issue in terms
Speaker 1: of exchanging, buying selling hard currency. The biggest problem is
Speaker 1: always transferring money because there is a very short list
Speaker 1: of banks that are still connected to you know, Iranian
Speaker 1: banks via Swift. Not all Iranian banks are on the
Speaker 1: as the end list. There is a couple of privately
Speaker 1: owned banks that have nothing to do with sanctions. I
Speaker 1: mean they are part of the financial system, which is
Speaker 1: which is under sanctions. But but them as the entities
Speaker 1: that they are, okay. But the list of you know,
Speaker 1: foreign banks, Western banks that are happy to to to
Speaker 1: deal with them is very very short, and these are
Speaker 1: usually small, independent banks. Do you ever worry about some
Speaker 1: risk in the future that there's some eventuality that your
Speaker 1: money could just get completely stuck in around that there
Speaker 1: could become a point in which there's no banks in
Speaker 1: the West or in Europe that you have access to
Speaker 1: that are willing to take money or take transfers from
Speaker 1: an Iranian bank. Look think about two thous so before
Speaker 1: Iran deal was implemented, financial system was completely cut off.
Speaker 1: I mean, no one was dealing with Iranian banks, and
Speaker 1: yet there was eight billion dollars per year of trade
Speaker 1: between Iran and other countries. So you know, money will
Speaker 1: always find its way. And how this was done is
Speaker 1: you know, you had hundreds or I don't know, maybe
Speaker 1: thousand's big number of intermediaries that act as you know,
Speaker 1: market makers between those that want to move money and
Speaker 1: move money out. And this has been actually you know,
Speaker 1: working in the Middle East region, in the Europe world
Speaker 1: for you know, actually for centuries. So banks may be
Speaker 1: cut off but but it usually finds the way. Another
Speaker 1: thing is that in general, sanctions used to be more
Speaker 1: effective sometime ago, like ten years ago, up to ten
Speaker 1: years ago, or up to five years ago. What I'm
Speaker 1: seeing right now, especially on the smaller transaction levels, and
Speaker 1: many countries are embracing it, is that people use more
Speaker 1: and more often cryptocurrencies to transfer money because it's cheap
Speaker 1: and it's fast, and it doesn't have any institutional problems.
Speaker 1: I think it would be actually for all the let's
Speaker 1: say troubled countries from Iran to venezuel and so wants
Speaker 1: to to to embrace it. They obviously would still like
Speaker 1: to control it, which is not that easy. So so
Speaker 1: they are a bit puzzled in terms of what to do.
Speaker 1: But I run actually legalized bitcoin mining recently, so maybe
Speaker 1: maybe they're going this way. Another question that I always
Speaker 1: have relating to markets like these, and honestly even in
Speaker 1: more sophisticated, very developed financial markets, like if you hear
Speaker 1: people talk about, say the Hong Kong market where Tracy is,
Speaker 1: they'll be like, oh, yeah, it's rife with a related
Speaker 1: party transaction and insider dealing, and you have to be
Speaker 1: extremely careful. Talk to us about corporate governance within publicly
Speaker 1: listed Iranian companies, how confident do you feel that they're
Speaker 1: well run, that they're not just run for the benefit
Speaker 1: of insiders? And did this sort of speak to again
Speaker 1: the salience of the payout ratio metric when you're anal
Speaker 1: rising companies in this market. Basically you have to judge
Speaker 1: to see that the earnings actually make their way back
Speaker 1: to shareholders. It's tricky because when you call the company,
Speaker 1: you want to get more information. For example, so we
Speaker 1: usually call the CFO when we want to understand more
Speaker 1: about the manner of balance sheet or about the operations.
Speaker 1: Sometimes they're just not interested in speaking with you. So
Speaker 1: the idea of you know, valuing the financial investors as shareholders,
Speaker 1: it's it's really not clear for them. So so here
Speaker 1: it's you don't get good responses from them. Very often
Speaker 1: you don't get good investor relations service in terms of
Speaker 1: you know, corporate governments, whether all the money goes back
Speaker 1: to you know, to all the shareholders or gets diverted
Speaker 1: to friends and family or whoever. Well, you have to
Speaker 1: look at earnings and the payout ratio and then if
Speaker 1: those earnings are real learnings but could be even higher,
Speaker 1: but they are not because you know, some of the
Speaker 1: costs are actually friends and family or whoever. But then
Speaker 1: I'm still paying four times for those earnings, for those
Speaker 1: smaller earnings that they should be well, I don't know
Speaker 1: it could be possible, but I guess I'm too fine
Speaker 1: with it because it's four times those smaller earnings. So
Speaker 1: there is even upside to this one, right, maybe it
Speaker 1: should be three times the real learnings, and you know,
Speaker 1: situation could improve. So so I'm definitely looking at evaluation
Speaker 1: and and and pay out ratio, so understanding what's happening
Speaker 1: to this money that the company is producing. So I
Speaker 1: want to get to recent events and the escalation intentions
Speaker 1: between the US and Iran, which Joe and I mentioned earlier.
Speaker 1: What was it actually like trading the market during that
Speaker 1: time and how did the market actually react? And I
Speaker 1: genuinely don't know the answer to this, because, as you mentioned,
Speaker 1: the trend stock exchange data is not on the Bloomberg terminal.
Speaker 1: We do have regional data for all the other major
Speaker 1: Middle East ind season, so I can judge from that
Speaker 1: that Iran was probably hard hit. But I'm really curious
Speaker 1: to hear your perspective about what exactly happened. Yes, So
Speaker 1: the first of all, we didn't do any trading, so
Speaker 1: we were just observing the market. On the first day
Speaker 1: after the killing of sleet money, the market went the
Speaker 1: limit down, which is minus five percent, so almost all
Speaker 1: of the staffs went limit down. So people panicked obviously.
Speaker 1: But what was interesting is the information that half of
Speaker 1: the selling came from investors who got their trading license,
Speaker 1: which means that they opened their first brokerage account within
Speaker 1: the last nine months, so this ran in year, so
Speaker 1: very unexperienced investors were new to the market. The next
Speaker 1: day some of the local institutional investors that are in
Speaker 1: the market started buying, mainly the biggest exporters, and the
Speaker 1: market win is still down, but it was something like
Speaker 1: minus minus one point five minus still depending on the
Speaker 1: on the index. So altogether, if you want to take
Speaker 1: into account the equity move plus the Essex move, you're
Speaker 1: looking at let's say minus ten percent down here to date,
Speaker 1: which to be honest, given the usual volatility of you know,
Speaker 1: Terron stock exchange and the effects, is is not that huge.
Speaker 1: So um, you know, those types of moves can happen
Speaker 1: very easily. You know within any week, right, So at
Speaker 1: some level, yes, these are big moves, but in the
Speaker 1: grand scheme of things for a market that's inherently volatile
Speaker 1: and a region that's very inherently volatile, and UH in
Speaker 1: a specific geopolitical context in which one sort of always
Speaker 1: expects potential escalation, your view is that it's not. It
Speaker 1: wasn't that dramatic. And also, you know S and P
Speaker 1: already had a chance to react positively to Donald Trump's
Speaker 1: press conference, and Iran is closed because he Ruan is
Speaker 1: trading from Saturday to Wednesday, So today and tomorrow it's
Speaker 1: it's weekends in I run quick note so that people
Speaker 1: listening to that we're recording at UH Thursday, January nine,
Speaker 1: just something to bear in mind so that when people
Speaker 1: finally when they get around till listening to it next week,
Speaker 1: they're aware of when this conversation took place. So what's
Speaker 1: the best case scenario at this point? I guess what's
Speaker 1: the best case realistic scenario? Like how in your world
Speaker 1: would you like events between Iran and the US to
Speaker 1: unfold from here? I think that the event from this
Speaker 1: week we're actually quite significant and potentially very positive because
Speaker 1: look so the US assassinated the Iran in general, Iran
Speaker 1: had to respond, and it was a very significant response
Speaker 1: because for the first time they fired missiles at the
Speaker 1: US military paces. So you don't need anything else to
Speaker 1: start the war. So if if people wanted to go
Speaker 1: to a proper military conflict, I mean, that was it right,
Speaker 1: they could go into all out confrontation. And this was
Speaker 1: a situation where I think the extreme outcomes became more likely.
Speaker 1: So either we have like a proper military confrontation, or
Speaker 1: things actually improved from here and perhaps you could have
Speaker 1: like a diplomatic reopening. We've been investing in yourun as
Speaker 1: long as Donald Trump as President of the United States,
Speaker 1: so I got used to seeing, you know, the relations
Speaker 1: between the countries getting worse and worse each quarter. So
Speaker 1: that's that's my main environment in which I've been operating.
Speaker 1: And actually after Trump's press conference, which I don't think
Speaker 1: was just neutral and like, you know, if we managed
Speaker 1: to avoid the confrontation this time, no, I think it
Speaker 1: had a lot of positive signals, talking about UM working
Speaker 1: together with Iran on anything like you know, fighting isis
Speaker 1: and and some with some some common targets, or you know,
Speaker 1: sending a signal that the US is open to peace
Speaker 1: with any nation that is looking for it, UM and
Speaker 1: someone it had a lot of positive signals and UM,
Speaker 1: given that both countries actually went through a very difficult
Speaker 1: test I mean with with those situations, and they passed it.
Speaker 1: I mean there is no like you know, tension. It's
Speaker 1: actually the escalation. This could be a major de escalation
Speaker 1: going forward. I don't know about you know, restarting negotiations
Speaker 1: and so one. This could take a lot of time.
Speaker 1: I don't know if it's going to happen or or when.
Speaker 1: But what I think is that actually we may have
Speaker 1: seen a low point in relations between Iran and the US,
Speaker 1: and it's also happening for the relations between Iran and
Speaker 1: Arab countries like Saudi Rae, there or Ua. Over the
Speaker 1: last six months, you had plenty of positive signals where
Speaker 1: those countries started, um, you know, talking to each other
Speaker 1: and also decreasing the level of tensions. So you know,
Speaker 1: but being cautiously optimistic, but this could shape as UM
Speaker 1: potentially the best duo politically speaking, the best year for
Speaker 1: Iran since you know, two thousands sixteen, and when when
Speaker 1: you're asking me about the best best case scenario. Long term,
Speaker 1: this is the proper integration of Iran with international financial markets,
Speaker 1: so mainly the banking system. And this will only happen
Speaker 1: when the functions are off, so Iran in the US
Speaker 1: make some sort of a deal when this happens and
Speaker 1: the foreign capital starts flowing in to Iran. You know,
Speaker 1: Iran gets to m s c I frontier markets with
Speaker 1: you know, thirty percent of the index, or go straight
Speaker 1: to mss M s c I emerging markets. You have
Speaker 1: ten billion dollars passive inflow overnight to the local stock market,
Speaker 1: You're going to see a bubble there that you know,
Speaker 1: the same, the same type of reaction where foreign investors
Speaker 1: started investing in Russia in the nineties, you know, China
Speaker 1: when it was opening up to foreign investors, Eastern Europe,
Speaker 1: or you know Pakistan in the early two thousands, and
Speaker 1: all those places weren't really nice places when they experienced
Speaker 1: massive bubbles. Right to Russia was corrupted, China was still
Speaker 1: understunctions after Channel mid Square. You know, in Pakistan, someone
Speaker 1: was blowing himself up every second day and there was
Speaker 1: a huge boo market going on. And what what was
Speaker 1: actually similar for all those markets was that they started
Speaker 1: from very low valuations, and this is exactly how it
Speaker 1: is in your run right now. So this is my
Speaker 1: very optimistic scenario long term. At some point um in
Speaker 1: the meantime, it looks as if geo politics could stop
Speaker 1: being a massive head wind, maybe not a tail winket,
Speaker 1: but not not a head wind anymore. And what we
Speaker 1: see at the end of the day, we look at,
Speaker 1: you know, bottom up like micro level numbers, we see
Speaker 1: the continuetion of air new strove and many drivers for
Speaker 1: you know, those U stock prices to continue going higher.
Speaker 1: Magic Woitel. Thank you so much for being with Joe
Speaker 1: and myself. Really interesting discussion. Thank you very much. Yeah,
Speaker 1: that was fascinating. Thank you so Joe. I found that
Speaker 1: conversation really interesting. Uh. I probably still wouldn't invest in
Speaker 1: Iranian stocks for a variety of reasons, not least of
Speaker 1: which the fact that I am a US citizen. But
Speaker 1: one thing that's really interesting is, you know, we talk
Speaker 1: a lot about emerging markets, We talk a lot about
Speaker 1: frontier markets, and the notion that we're sort of seeing
Speaker 1: a vanishing of these frontier markets. A lot of them
Speaker 1: are getting upgraded to e M status as their respective
Speaker 1: economies developed, and here you have of you know, a
Speaker 1: pretty big country, eighty three million people much I said, um,
Speaker 1: lots of resources. Uh. And it's not even on many
Speaker 1: people's radar in terms of investing. No, it's literally not
Speaker 1: on the radar because various data services can't even for
Speaker 1: legal reasons, carried data. But you know, I something that
Speaker 1: I thought a lot about during that conversation is there
Speaker 1: is this notion in finance that there is some sort
Speaker 1: of positive correlation between risk and rewards, so you take
Speaker 1: more risk and you get more reward. It's not actually
Speaker 1: that simple, it's not actually true. So for example, emerging
Speaker 1: markets in general are perceived as riskier than US markets,
Speaker 1: but they've underperformed for the last decade. Basically, small caps
Speaker 1: are ostensibly riskier than large caps, and in theory there
Speaker 1: should be more money in them, but in fact, um,
Speaker 1: you don't. They haven't actually done that well. The missing
Speaker 1: piece and why it does a work, is because what
Speaker 1: actually gives you a reward is not just risk per se,
Speaker 1: but it's sort of like gumption and moxie and going
Speaker 1: out and acquiring information that is too costly for others
Speaker 1: to do. And so when you listen to am talking
Speaker 1: about investing in Iran, It's not just that Iran is
Speaker 1: to me, It's not just that Irond is risky. It's
Speaker 1: like the legal compliance in the lawyer in d C
Speaker 1: explaining how the sanctions work, the figuring out of the
Speaker 1: banks and which banks can actually still transfer money with
Speaker 1: which banks in Europe, the work going to his limited
Speaker 1: partners in Europe and convincing them the that Iran is
Speaker 1: worth investing in. And when you think about the amount
Speaker 1: of like leg work that just that it takes to
Speaker 1: invest in Iran, then you could start to understand whether
Speaker 1: maybe in theory true profit opportunities. Yeah, I mean it
Speaker 1: takes extra effort, that's for sure. You know, in some
Speaker 1: respects it takes access, uh in many ways as well,
Speaker 1: and in the sense that some people just cannot touch
Speaker 1: that market and we lawyers can with a lot of work,
Speaker 1: as as you point out. Yeah, Like so for example,
Speaker 1: if I wanted to invest in Brazil right now, I
Speaker 1: could just log into my brokerage account and I could
Speaker 1: type in the ticker for the Brazil et F and
Speaker 1: it would be as easy, would literally no extra effort
Speaker 1: than uh, you know, investing in the sp five it's
Speaker 1: just changing the three or four letters that I would
Speaker 1: type in my keyboard. It's obviously a totally different story
Speaker 1: when just the mere access to the market is so
Speaker 1: much more cumbersome incommute. You know what, I really want
Speaker 1: to see that Iranian Bloomberg esque data service. I'm really
Speaker 1: curious about that one, and I'm gonna go check that
Speaker 1: out right after. We're gonna have to look it up.
Speaker 1: This has been another edition of the Odd Thoughts podcast.
Speaker 1: I'm Tracy Alloway. You can follow me on Twitter at
Speaker 1: Tracy Alloway and I'm Joe Why Isn't All You? And
Speaker 1: follow me on Twitter at the Stalwart. And you should
Speaker 1: follow our guest mache Voitel on Twitter. His handle is
Speaker 1: at m w o j t a l so, uh
Speaker 1: check his stuff out there, and be sure to follow
Speaker 1: our producer on Twitter, Laura Carlson. She's at Laura M. Carlson.
Speaker 1: Follow all the Bloomberg podcasts on Twitter at Podcasts, and
Speaker 1: follow the Bloomberg head of podcast, Francesca Levy at Francesca Today.
Speaker 1: Thanks for listening.