An article at OilPrice.com on Tuesday featured this quote from Khatija Haque of the Dubai-based bank Emirates NBD, referring to the opening of the Saudi stock exchange to foreigners:
“As the largest and most liquid market in Middle East and North Africa, there is understandably significant interest in and excitement about this event.”
Okay, so some new opportunities are available. Still, others are apparently less enthusiastic than Ms. Haque. Take former Military Intelligence Officer Lt. Col. Bill Cowan (Retired), who on Neil Cavuto’s FoxBusiness show on Monday, said any American investor or firm who invests in Saudi Arabia “does so with the complicity, knowing full well, that some of that money… is going to make its way to groups, elements, organizations, or people who are dramatically and violently opposed to the United States.”
Cowan cites the fact that Saudi money was a major initial funding source for ISIS, the fact that 15 of the 19 terrorist attackers on September 11, 2001, were Saudis, and the fact that Saudi Arabia continues funding radical imams and organizations. He does so while acknowledging Saudi Arabia may be a fine place to invest, from a purely financial standpoint. I should also point out Saudi Arabia is officially our ally.
An article on Yahoo! Finance on Wednesday suggested that foreign investor interest in Saudi Arabia so far this week has been underwhelming, citing factors like modest trading volumes and liquidity levels – coupled with full valuations – that could have foreigners sitting on their hands for now. The article also cites a source who opines that MSCI could add Saudi Arabia to its emerging markets index “as soon as 2017.”
So where do you stand? Are you okay investing in Saudi Arabia’s stock market? Do you expect you’ll do so at some point?
How about Iran?
Iran’s stock market, of course, is off limits to foreign investors, due in part to international sanctions still in effect against the country. But according to a CCN Money headline (and I quote): “Investors are lining up to get into Iran.”
The Tehran Stock Exchange market cap stands at about $160 billion with 300 public companies, according to Charlemagne Capital emerging markets portfolio manager Dominic Bokor-Ingram, who spoke to CNBC back on April 7th (video here), on the occasion of Charlemagne’s announcement of a partnership with one of Iran’s largest investment firms, Turquoise Partners.
“If the Iranian market went into the global frontier market index immediately it would be worth one quarter of that index right now.”
Of course, the international sanctions against Iran are currently a heated topic in the nuclear talks currently facing a June 30th final deal deadline. The world is watching to see whether the countries involved in the negotiations will strike a deal, and if so, what that deal will be. Already, the deadline has been extended 3 times – most recently on April 2nd when negotiators announced having reached a highly controversial “framework.” That announcement was immediately followed by celebrations and “death to America” chants in the streets of Tehran, accusations from Iran’s leader of political spin taking place in Washington, D.C., and stern warnings from Israeli Prime Minister Benjamin Netanyahu, who insisted the framework’s parameters “would legitimize Iran’s nuclear program, bolster Iran’s economy, and increase Iran’s aggression and terror throughout the Middle East and beyond.”
Even if sanctions are lifted (which some experts predict will happen by year-end), Iran’s stock market is presumably several steps away from following Saudi Arabia’s lead in opening to foreign investors. An April 7th CNN Money article quoted Karim Sadjadpour, an Iran expert at the Carnegie Endowment for International Peace, who said this:
“Removing the sanctions will take time. But what will take much more time is creating an efficient business environment with rule of law and transparent regulations.”
An aspiring Iranian investment manager quoted in the same article agrees, noting that Iran’s banking system simply isn’t up to international standards yet. The manager’s investment fund includes (of course) oil, but is “focusing more” on Iran’s hospitality, retail and service sectors.
So Iran, which boasts the world’s largest oil and gas reserves, is apparently (like Saudi Arabia) interested in diversifying its economy to include additional sectors – from consumer, industrial, and manufacturing to the more traditional emerging-market sectors of metals, mining, oil, gas, telecoms, and banks. The country is already home to a well-educated workforce, and (according to Bokor-Ingram) a “fully functioning stock market.” Interested parties reportedly include investors – particularly Iranians – living in the U.S., United Arab Emirates, Kuwait, and even Saudi Arabia.
Bokor-Ingram is (naturally) enthusiastic about Iran’s prospects, saying, “The market is trading at price to earnings multiple of five and the dividend yield is in the teens.” He adds, “These are terms that emerging market investors can’t find anywhere else in the world.” Yet morally (and in the name of national security), would you be willing to invest in Iran, even if you could? U.S. General Martin Dempsey, chairman of the Joint Chiefs of Staff, recently said this to reporters in Jerusalem, according to Reuters:
“If the deal is reached and results in sanctions relief … it’s my expectation that it’s not all going to flow into their economy. I think that they will invest in their surrogates. I think they will invest in additional military capability.”
So I ask you again: Would you invest in Iran?
Saudi Arabia and Iran
Saudi Arabia and Iran, of course, are religious rivals. Iran is a Shiite nation, and Saudi Arabia is Sunni. Even today, Saudis continue fighting Iranian-backed Houthi rebels in Yemen, in one of this year’s top stories.
Regardless of the outcome of this month’s Iranian nuclear talks, Iran’s pursuit a nuclear weapon post-talks (deal or no) could well spark a nuclear arms race in the Middle East (including Saudi Arabia, Israel, Egypt, Turkey).
Would you invest in Saudi Arabia, a traditional – yet sometimes questioned – U.S. ally whose stock market is fully valued?
Would you invest in Iran, a state sponsor of terror, avowed enemy to Israel and the U.S., and aspiring nuclear mischief maker whose stock market offers double-digit yields?
Or will you straddle the fence, and simply wait for these countries to become included in generally accepted global indexes, at which time you can be a “passive” investor?
My goal for this article was to make you think… and to lay out some of the issues you might think about. Comments welcome.
This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice.