The American investment firm says Iran’s historic nuclear deal and the lifting of sanctions last month means there is now “much to like” in the Iranian market.
“Ultimately, with a focus on quality, investment in Iran could prove rewarding, especially given the very low valuation starting point,” T Rowe Price said in an article titled Iran – Dispelling the Misconceptions, but Accepting the Challenges.
“In addition, with Iran being one of the last great frontier markets left to invest in, it could potentially provide one of the final pieces of the investment puzzle for some investors.”
T Rowe Price said Iran’s demographics, with 60 per cent of the population under the age of 30, its educated workforce and natural resources, make the country a compelling investment destination.
“We believe there is money to be made for first movers coming into the market in early 2016.”
While there is opportunity, over the long-term there is also a risk of having stranded assets, T Rowe Price cautioned.
“Institutional investors, however, will probably face some challenges in areas of liquidity and corporate governance,” it said.
Iran’s banking system, according to T Rowe Price, is a key area of concern. It is undercapitalised and has a high rate of nonperforming loans, with no plan for recapitalisation.
Potential investors should also take note of issues such as business transparency and corruption. T Rowe Price said Iran ranked 136 out of 175 countries on Transparency International’s 2014 Global Corruption Index.
Additionally, the Iranian Revolutionary Guard Corps (IRGC) – the country’s security and military body – is an “influential economic player” with control over a large network of state and quasi-state companies.
“Challenges such as these are not uncommon as markets open up, and there are always areas for experienced investors to uncover neglected companies with healthy or improving operations," the article said.
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