In his first weeks in office, Donald Trump is keeping his promises.
Last month, the president signed an executive order barring citizens of seven Muslim-majority countries, including Iran, from entering the U.S. for the next three months. Iran promptly reciprocated, banning American citizens from visiting Iran. And just two days ago, according to Bloomberg, the U.S. started to turn up the heat:
“The White House said it is putting Iran ‘on notice’ for testing ballistic missiles as the Trump administration turned its focus to a key foreign policy area the new president vowed to address after taking office.”
It’s not like Iran is a new entrant on the “naughty” list. It’s been enemies with much of the rest of the world – the west, at least, and by extension a lot of other countries – for most of the past few decades. Economic sanctions have prevented Western investment in and trade with Iran for over 35 years.
Iran has been closed off to much of the world for a long time. So a lot of people don’t know much about the country. Ask the average American what he or she knows about Iran… and they’ll probably talk about riots involving burning American flags, U.S. hostages and war. The average person in Singapore or elsewhere in Asia won’t know a lot more.
Back in 1979, Iranian revolutionaries took 66 hostages in the American embassy in Tehran, not long after a revolutionary movement overthrew the U.S.-supported ruler of Iran, Shah Mohammad Reza Pahlavi, and turned the country into the Islamic Republic of Iran. I vividly remember watching live TV coverage of the American hostages returning to the U.S., on the day Ronald Reagan was sworn in as president in early 1981.
What you hear in the international media about Iran often relates to its nuclear-development program. In July 2015, a long-negotiated deal on Iran’s nuclear development program paved the way for some normalisation of relations between the U.S. and Iran. With Trump’s recent warning, that’s back in the news.
But that meager progress is being reversed. Iran is now back on America’s blacklist, taking its spot again on former U.S. President George W. Bush’s “axis of evil” (along with North Korea and Iraq).
When I went there
I visited Iran a few years ago, when I was writing an investment newsletter focused on investing in out-of-favour markets around the world. Then (like now) you couldn’t find a more contrarian market than Iran.
At the time, a former boss who was an expert on politics in the Middle East warned me, “Assume you’re being followed… Don’t do anything stupid.” In the weeks leading up to my trip to Iran, I started to get a lot of advice like this. “Just be careful,” my parents – who have traveled to far more exotic locations than I could ever hope to – told me.
So what did I find?
For starters, a country that was delightfully absent of western influences. There were (and are) no McDonald’s or Pizza Huts in Iran. You won’t find CNN on the hotel television. Tom Cruise and Scarlett Johansson were not playing at the local cinema. Women sat at the back of public buses, separated by a steel bar from the men in the front. Even the female mannequins in store windows wore headscarves. I also didn’t find any beer: You can’t (legally) buy alcohol in Iran, although there are plenty of ways to get around this if you know what you’re doing. (What passed for “beer” – below – did not come close to satisfying the beer itch.)
While I was in Tehran, Iran’s capital city, I visited the Tehran Stock Exchange, which is probably the biggest stock exchange you’ve never heard of. It’s about as big as the stock exchanges of Vietnam and Pakistan. And at a price-to-earnings ratio of just over 7 (compared to 21 for the S&P 500, and 13 for Singapore’s STI), it’s one of the cheapest stock markets in the world.
While I was in Iran, I saw very little evidence of anti-Western (or anti-American) sentiment, aside from a few dated murals (on the wall outside the former American embassy, for example). No one seemed to notice someone speaking English in public (I could count on one hand the number of tourists I saw the entire time I was there. In general: In big cities around the world, the vast majority of the time no one cares if you look a little bit different. Big city people – anywhere – are too busy with their own thing. Tehran was no different.
Outside of the capital, the people I met – admittedly a very small sample size – were engaging and pleasant. When the discussion turned to politics, they bemoaned how politicians have managed to mess things up for everyone. And it’s true: Despite the Iranian government’s new ban on American citizens, I’ll bet that on any given day, 99 out of 100 Iranians would welcome a foreigner (American or otherwise) into their homes… or, at the very worst (in Tehran for example), be completely disinterested in that foreigner.
Full disclosure: When I visited Iran, I didn’t use a U.S. passport. And when I spoke with people on the street, I said that – like my traveling companion Sam – I was from Australia. For many non-native speakers, telling the difference between different brands of English is very difficult… so my American accent wasn’t a factor.
The investment opportunity of Iran
For years, many of the goods available for sale in Iran were of Russian or Chinese origin, or else were smuggled in. When I was in Iran, the country’s 75 million people were enormously hungry for the consumer products – and lifestyle – that much of the rest of the world takes for granted.
Iran has the world’s fourth-largest proven oil reserves – and the second-largest proven gas reserves. Someday, if its politicians stop stealing and foreign investment can flow in, Iran will be extraordinarily wealthy.
As I mentioned, I went to Iran in search of investment opportunities. Given economic sanctions on Iran – and, most importantly, the sanctions-imposed isolation of the country’s banking sector from most banks in the rest of the world – it would have been very difficult to invest directly in Iran. For the citizens of many countries, it’s illegal.
So I found a London-listed oil company that was doing business in neighbouring Turkmenistan, which would stand to benefit from an easing of economic sanctions. As it happened, the company wound up being bought out by the majority sharehold, at a 39 percent premium to the price at which I initially recommended it.
Unfortunately, I won’t be heading back to Iran anytime soon, even though it’s on a very short list of countries I’ve visited that I’d really like to go to again. Relations between Iran and the U.S. are getting worse right now. This is another pinch of uncertainty added to a global environment that is getting more unpredictable all the time.
One answer is to look for investment opportunities that stand to benefit from escalating rhetoric from Donald Trump. We wrote about one of these in the Asia Alpha Advisory… and subscribers are already up strongly over the past few weeks. For more information, click here.