September 2020 - Volume 14, No 163

Summary Equity Markets The TEDPIX index and junior Farabourse (IFB) declined 9% and 8% in IRR terms during this month ending August 2020, respectively. Based on the unofficial exchange rate, the month-on-month loss in dollar terms was 11% in TSE and 9% in Farabourse market. We anticipate the market has entered into a bearish territory and the correction will continue.

Debt Markets For the start of the Iranian calendar year 1399 (March 2020) to end June, total issuance on the fixed income market reached 3.9 billion US$ based on the unofficial exchange rate. to maturity (YTM) remained stable at 18.9% at the end of August.

Economic Review This issue reviews the latest developments in foreign exchange rate market, Iranian Purchasing Manager Index (PMI) and trade balance in the Iranian economy. In addition, we have included a separate report covering the latest macroeconomic data published by relevant organizations and senior macroeconomic strategists in a fact-sheet summary, as well as an economic calendar released by local and international statistics centers.

Masule, Photo by: Amin Safaripourn

1 Iran Investment Monthly Table of Contents 3 Market Overview 3 Market Update

6 Performance & Updates

7 Historic Trends & Sector Insight

8 Industry at a Glance

9 Market Snapshot

10 TSE & Junior Market Performance

11 Top Ranked Companies

12 Iran’s Fixed Income Market 14 Economic Review

14 Latest Updates

16 Macroeconomic Data 17 News & Views

17 Recent Brokerage Reports

17 Turquoise News

2 Iran Investment Monthly Market Overview September 2020 - Volume 14, No 163

Market Review

The Iranian Stock market sold off in August for the first time since October 2019 as the market sentiment shifted dramatically and retail started to liquidate their positions and realize profits. An unprecedented 198 % in the USD value of the since the beginning of 2020 up to end of July has encouraged some investors to take their profits for the time being as the US election looms. The overall index fell by 12% in Euro terms in August, the most severe decline since August 2018 .

The 2020 rally looks even more bizarre if one takes the performance of the TSE versus all global markets over different time periods. If we take the peak point of August 2020, here is the 5 year comparison of Shervin Shahriari the annualized return of the TSE in free market USD rate versus its Chief Investment Officer global peers:

Global Stock market indices: 5- Year Annualized Return in USD terms

Source: MSCI

There are many ways to doubt the sustainability of this rally. One way would be to look at the relative measures i.e. comparing the value of assets versus the GDP number, total money supply, etc.

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Total Assets to GDP and Money Supply

Source: CBI, TSE, howmuch.net

As is clear in the chart, the recent jump in assets prices (2020 to mid-August 2020) does not correspond to the broader economic measures like the GDP and M2. Even historically, current ratios are multiple times bigger than the highest record we had in the past in Iran. So what has fueled this speculative boom in the asset markets? The answer lies with the monetary policy. The table below reports the monthly growth in the base money of IRR in 2020:

Index Jan Feb Mar Apr May June July Aug 2020 2020 2020 2020 2020 2020 2020 2020 Monetary 0.5% 1.3% 8.1% 1.4% 5.6% 2.3% -2% -2.2% Base growth (IRR)

Numbers indicate that the CBI executed an easing monetary policy in response to the virus outbreak in early 2020. That proved to be harmful further down the line in an environment that the supply side of the economy is so restricted because of the shrinking GDP and imports. The CBI carried out the easing by lending to the government which had been suffering from a painful budget deficit. However, as the policy started to take its toll on the CPI and the markets, the CBI lately reversed the course by forcing the government to issue massive amount of bonds. In the past three months, the government has sold more than 3 billion USD worth of bonds mainly to the commercial banks which amounted to the whole deficit it had year to date. That

4 Iran Investment Monthly Market Overview September 2020 - Volume 14, No 163

is why the monetary base has shrunk in July and August. In other words, not only did the CBI stop lending to the government but it also started to receive its prior receivables.

With all mentioned, this seem that we are close to a pivotal moment in Iranian markets. Hence, this is appropriate to be patient and keep the highest level of flexibility in our investment strategy. We will naturally be prepared to take action in accordance with the US election results and the monetary policy developments

5 Iran Investment Monthly Market Overview September 2020 - Volume 14, No 163

Performance & Updates

11 - Year Average (2008-2020)1 Market Capitalization (billion US$) 128 TSE & Farabourse Junior Market P/E 9 TSE Yield (%) 3 10% TSE Market Cap / GDP 63% TSE & Farabourse Total Turnover (billion US$),Average Annual 23 TSE TSE Overall Index Average Annual Growth (US$) 34% TSE

1 Annual data from 2008 to Aug 2020 2 Calculated based on unofficial IRR per US$ exchange rates.

Summary - Aug 2020 Market Capitalization (billion US$) 365 TSE & Farabourse Junior Market Free Float 22% TSE & Farabourse Junior Market Number of Listed Companies1 644 TSE & Farabourse Junior Market TSE Index Performance (US$)2,4 -10.5% (MTD) 160.4% (YTD) TSE Total Turnover (million US$)2 15,618 m$ TSE & Farabourse Junior Market (%) 3 2.2% TSE P/E 36.7

1 169 companies are listed in Over-The-Counter (OTC) or off-exchange market named as “Base Market” in Farabourse junior market which trading of these companies are done directly between two parties. 2 Calculated based on unofficial IRR per US$ exchange rates. 3 Calculated based on the latest market data 4 TEDPIX Exchange Dividend Price Index (Dividend & Price Index) Tehran & Junior Market Trade by Value1 - Aug 2020

Iran Farabourse (Junior Market) Trade Volume (million US$)

Tehran Stock Exchange (Main Market)Trade Volume (million US$) Since the beginning 2020, the market has expanded to the upside recording the YTD performance of the TSE and IFB to 366% and 267% in IRR terms respectively. The gain in hard currency terms was 160% on the TSE and 105% on the IFB on a year to date basis. In August 2020, the TSE equity trade value declined to 2,741 million US$ from the 3,321 million US$ last 3-month average. The total number of shares traded on the TSE declined by 26% compared to the three-month average of 30 billion shares. Million US$

Source: Iran Farabourse Company All figures in US$ are converted from IRR at the free market rate 1 Trading volume month on month in US$ term - TSE includes mainly equity while Farabourse has more fixed income instruments and smaller equities.

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Historic Trends & Sector Insight

Long-Term Overall Index (Normalized in USD) -Term Iranian Market Cap ( Normalized in USD)

Historic Average: 182 Historic Average: 170

Aug 2020 : 561

Aug 2020 : 623

TSE Best Performing Sectors & Overall Index (Normalized in USD)

99 95 Overall USD 90 Metal Ores Mining Post & Telecommunication 86 Monetary Intermediation - Banks

TSE Large Sectors (% Market Capitalization)

19% 14% 11% 9% 8% 7% 6% 4% 23% Auto Other Mining Metals* Monetary Diversified Chemicals

Source: TSE, Bonbast, as of Aug 2020 Post, Telecom *Metals sector includes steel, copper and aluminum

7 Iran Investment Monthly Market Overview September 2020 - Volume 14, No 163

Industry at a Glance - Aug 2020

YTD 1-Year Return 5-Year Return Top Performing Companies Market Cap Sector Trailing (%) Trailing (%) Trailing (%) in May 2020 (MOM %) (Million USD) in USD in USD in USD

Yazd Alloy Steel Industries Co. 31 100% 242% 288% Metals* Sadid Pipe and Equipment Company 45 153% 106% 626%

Jahan foolad Kavian 553 413% 345% -

Damavand Mining Company 123 -18% -1% 73%

Mining Iran Manganese Mining Company 79 38% 104% 916%

Sadr Tamin Investment Company 1,653 131% 175% -

Tajhiz Niroo Zangan 10 46% 37% 556%

Petroleum 709 92% 137% 18%

Sepahan Oil Company 577 41% 58% -51%

PolyacrylIran 151 0% -11% -

Chemical Ranguin Industrial and Chemical Co. 25 -23% -39% -

Kaf 39 100% 122% 240%

Ayandeh Bank 182 863% 758% 254%

Banks Iran Zamin Bank 1,816 358% 376% -

Melal Credit Institute 3,514 203% 243% -

TSE Large Sectors 5 -Year Performance (Normalized in USD) Metals Mining Petroleum 455, Chemical Aug 2020 Banks 333, Aug 2020

297, Aug 2020 243, Aug 2020 191, Aug 2020

Source: TSE, Bonbast, as of ending Aug 2020 *Metals sector includes steel, copper and aluminum

8 Iran Investment Monthly Market Overview September 2020 - Volume 14, No 163

Market Snapshot -Aug 2020 Iran & Regional Markets

Iran: A 26-Year Snapshot, Asset Class Annualized Return in US$ (%) P/E Multiple Comparison MSCI Morocco 18.0 14% Kuwait 15.2 Qatar 16.0 6% MSCI Arabian Markets 17.5 5% MSCI GCC Countries 17.9 MSCI Egypt 8.1 Saudi Arabia 29.0 -0.2% UAE 12.5

% Iran 36.7 Turquoise Iran Fund* 26.3 Sub Fund B/C, as of ending Aug 2020 Note: Annual data from 1995 to Aug 2020 Source: CBI, TSE, IFB All figures in US$ are converted from IRR at the free market rate

Iran & International Markets

3 4 Tehran Stock Exchange MSCI Emerging Markets MSCI Frontier Markets

Average P/E Average P/E Average P/E 36.7 18.2 13.3 1 1-Year Performance in $ 1-Year Performance in $ 1-Year Performance in $ 199.6% 14.9% -12.6% Annualized 10 Year in $ 2 Annualized 10 Year in $ Annualized 10 Year in $ 12.9% 4.1% 4.6%

18.8 Chemicals 19.8 Consumer Discretionary 51.6 Financials 13.6 Basic Metals 17.8 Financials 13.5 Communication Services 11.1 Diversified Industrials 17.5 Information Technology 10.4 Real Estate 9.0 Refined Petroleum 13.0 Communication Services 7.7 Consumer Staples 7.8 Monetary Intermediation 7.1 Materials 4.3 Materials

Sector Breakdown (%) 39.7 Others Sector Breakdown (%) 24.9 Others Sector Breakdown (%) 12.4 Others

1.TEDPIX Tehran Exchange Dividend Price Index (Dividend & Price Index) performance calculated in US$ for the Period of Aug 2019 to Aug 2020 2.Overall Tehran Stock Exchange Index 10 year annualized performance calculated in US$ 3.MSCI Emerging Markets Index (US$) - Aug 2020 4.MSCI Frontier Markets Index (US$) - Aug 2020 Source: Tehran Stock Exchange - - MSCI Inc., Kamcoonline. All figures in US$ are converted from IRR at the free market rate, unless otherwise indicated.

9 Iran Investment Monthly Market Overview September 2020 - Volume 14, No 163

TSE & Junior Market Performance Tehran Stock Exchange: TEDPIX*, Aug 2020

Normalised in US$ Normalised in US$

Volume million shares Million Shares

Source: Tehran Stock Exchange *TEDPIX Tehran Exchange Dividend Price Index (Dividend & Price Index) All figures in US$ are converted from IRR at the free market rate, unless otherwise indicated.

Iran Farabourse (Junior Market): IFX*,Aug 2020

Normalised in US$ Normalised in US$

Volume million shares Million Shares

Source: Iran Farabourse Company *Iran Farabourse (Junior Market) Overall Index (Total Return) All figures in US$ are converted from IRR at the free market rate, unless otherwise indicated.

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Top Ranked Companies - Aug 2020 Turnover Value % Total Turnover (million US$) The Social Social Security Investment Company established in 1986, Security 102.3 0.8% the company has a diversified sector investment portfolio Investment including oil & gas, mining, pharmaceutical, energy, cement and banking sectors. Company

Isfahan Oil 0.8% Esfahan Oil Refining Co. has 23% of Iran’s refining capacity with a Refinery 101.5 nominal capacity of 375,000 barrels per day.

In 1972, Sarcheshmeh Copper Mines Joint Stock Co of Kerman was established and, later, in 1976, it was renamed National Iranian 0.6% to National Iranian Copper Industries Co. to cover all Copper Ind. Co. 76.4 copper mines operations throughout the country. This company is active in extraction & utilization of copper mines, production of copper concentrates & manufacturing copper products.

Esfahan , one of Mobarakeh Steel the largest industrial complexes in the country, Manufacturing 0.5% Top 5 Traded by Value Traded 5 Top started its operation in 1991. The company 65.6 produces more than 50% of Iran’s steel and operates in seven industrial complexes. Tehran Tehran Oil Refining Co. was founded Oil Refining 0.4% in 1971 with initial capacity of 85,000 Company 49.4 BPSD. The company is involved in crude oil and hydrocarbon refining. Market Cap % Total Market Cap. (million US$)

Persian Gulf Petro- Persian Gulf International Transportation founded in 1989 as a joint private 6.4% stock in Iran and was listed in 2010 in Tehran Stock Exchange. The company chemical Industry 17,380 operates as a distributor of products and goods across the country.

Mobarakeh Steel Esfahan Mobarakeh Steel Company, one of the largest industrial Manufacturing 6.0% complexes in the country, started its operation in 1991 with a nominal 16,391 capacity of 2.4 million tons per annum. The company produces more than 50% of Iran’s steel and operates in seven industrial complexes. The Social Security Social Security Investment Company established in 1986, 5.4% The company has a diversified sector investment portfolio Investment 14,700 including oil & gas, mining, pharmaceutical, energy, cement Company and banking sectors.

In 1972, Sarcheshmeh Copper Mines Joint Stock Co National Iranian of Kerman was established and, later, in 1976, it was Copper Ind. Co. 5.0% renamed to National Iranian Copper Industries Co. 13,632 to cover all copper mines operations throughout the country. This company is active in extraction & utilization of copper mines, production of copper concentrates & manufacturing copper products. Top 5 by Market Capitalization Top Esfahan Oil Refining Co. has 23% of Iran’s 3.0% refining capacity with a nominal capacity of 8,128 375,000 barrels per day.

Source: Tehran Stock Exchange, Firouzeh Asia Brokerage. All figures in US$ are converted from IRR at the unofficial rate.

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Iran’s Fixed Income Market For the start of the Iranian calendar year 1399 (March 2020) to end June, total issuance on the fixed income market reached 3.9 billion US$ based on the unofficial exchange rate. Yield to maturity (YTM) remained stable at 18.9% at the end of August.

Iran’s Debt Securities Market - Aug 2020* 0.63 7.7 Tehran Stock Exchange Iran Farabourse (Junior Market)

Market Value (billion US$)* 0.25 48.18 Tehran Stock Exchange Iran Farabourse (Junior Market)

Average Daily Trading Value (million US$)*

49,650 10,110,350 Tehran Stock Exchange Iran Farabourse (Junior Market)

Average Daily Trading Volume (bonds)

* As of Mordad 1399 (20 July - 20 Aug 2020)

Value & Breakdown of Sukuk Issuance in Iran’s Capital Markets, 2020 (1399)** - (billion US$)

81% 10% 8% 1%

Murabaha Sukuk Islamic T-Bills Salaf (Salam) Other

Source: Iran Farabourse **Calculated by the unofficial exchange rate in the period of issuance, percentages have been rounded and may not total to 100.

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Iran’s Fixed Income Market

Snapshot of the Highest Yielding Debt Securtites1 - Aug 2020

Issuer Type YTM (p.a.) Maturity

Corporate Murabaha 0.200 13-Oct-22

Corporate Fixed Income 0.195 21-Oct-22

Corporate Murabaha 0.195 11-Nov-21

Corporate Ijara 0.194 2-Mar-24

Corporate Murabaha 0.194 17-Jun-23

Corporate Fixed Income 0.192 11-Nov-23

Corporate Mosharekat 0.192 20-Jun-23

Corporate Mosharekat 0.192 19-Mar-23

Corporate Fixed Income 0.192 27-Apr-25

Corporate Murabaha 0.191 13-Oct-21

1 This snapshot is a selection of the highest yielding securities with minimum one year maturity in Iran’s debt markets and should not be considered as a solicitation or recommendation by Turquoise Partners.

Iran’s T-bills YTM in IRR Term

Aug 2020 18.89%

Source: Tehran Stock Exchange - Iran Farabourse

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Latest Updates Exchange Rate

The USD rate against IRR experienced a 23% increase over the past two months. It is worth noting that at the end of August, the gap between the official rate (CBI market rate) and the unofficial rate of the exchange has diminished to less than 10 percent; this is an encouraging sign that the CBI is attempting to revive the unified exchange rate.

USD Rate

Source:Bonbast

Purchasing Manager Index (PMI)

The Purchasing Manager Index provides information about current and future manufacturing related data in various sectors. It is an indicator derived from monthly surveys sent to senior executives from around 400 companies, and is organized by Iran Chamber of Commerce. The PMI is a number from 0 to 100, and is calculated based on the weighted average of five sub-indices. These five sub-indices monitor changes in the business unit’s operations in terms of new orders, raw material inventory, production, supplier deliveries and employment. A PMI over 50 represents an expansion and under 50 indicates a contraction (with a reading of 50 implying no change) in comparison to the previous month. Between June and August 2020, the components of Iran’s Purchasing Managers Index (PMI) including new orders and business activity contracted considerably. The table below illustrates the trend of the PMI’s components over the past three months.

14 Iran Investment Monthly Economic Review September 2020 - Volume 14, No 163

Index June 2020 July 2020 Aug 2020

Overall PMI 48.41 45.47 46.43

Business Activity 51.05 46.40 47.58

New Orders 49.28 44.39 41.53

Delivery Times 52.07 47.71 53.28

Purchase of Inputs 40.99 35.29 35.29

Employment 44.76 49.37 49.37

Trade Balance Iran’s non-oil trade resulted in a deficit of 2.9 billion US$ in the period from March to August 2018, according to official customs statistics.

Non-Oil Trade balance (Inc. Oil Condensate)

Source:CBI

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Macroeconomic Data Iran Economic & Market Data Data Macroeconomic Forecast Calendar Unit 2020/ 21 2021/ 22

SCI: A Selection of Labour Force Survey Real GDP Growth (%) -6.0 3.1 Results: Spring 1399 Released: 15 August 2020 Inflation (%) 34 33 SCI: A Selection of Labor Force Survey Results - Year 1398 Released: 2 August 2020 Actual Macroeconomic Data Unit Period Value Comments

Population Growth % 2011- 2016 1.24% -

1398 Unemployment Rate % 9.8% - (Mar 19 - Mar 20)

Inflation Rate % May-20 (Y/Y) 25.8% 2016 = 100

1398 Non-oil GDP Growth % -0.6% 2011 = 100 (Mar 19-Mar 20) 1398 GDP Growth % -7.0% 2011 = 100 (Mar 19-Mar 20)

Sources: IMF, Central Bank of Iran, Statistical Center of Iran, World Bank

16 Iran Investment Monthly News & Views September 2020 - Volume 14, No 163

Recent Brokerage Report Turquoise News

Iran Daily Market Update –August 2020 June 9, 2020 Turquoise Partners’ ETF, was ranked as one of the best perform- 26 Sep 2020 ing Index Funds, with a positive performance of 240% in just over four months, up until July 13th. 23 Sep 2020 More Information 22 Sep 2020

21 Sep 2020 February 9, 2020 The Turquoise Venture Capital Fund started its public 19 Sep 2020 market subscription on the Iran Farabourse exchange from Feb 9th, 2020 for a period of 7 days. The Fund however was 16 Sep 2020 oversubscribed on the 3rd day and was able to raise money from a solid mix of both institutional and private investors. This public market subscription set a record within the Iranian capital markets for the venture capital funds, which was a positive news for the Iranian start-up ecosystem. More Information in Persian

October 2, 2019 Turquoise Partners unveiled an online system to ease investment in start-ups at Iran National Library. More Information

September 17, 2019 On Tuesday, September 17, 2019, the Director of Trade, Investment and Innovation Department at the United Nations Industrial Development Organization (UNIDO) and his colleagues had a meeting with Turquoise Partners. In this meeting, which was held at the Turquoise Office, entrepreneurial opportunities in the Iranian tech scene and frontier markets were discussed. More Information

17 Iran Investment Monthly News & Views September 2020 - Volume 14, No 163

Asset • EU Regulated Equity Fund Management • EU Regulated Fixed Income Fund • Domestic Fixed Income Fund • Domestic ETF TSE-30 • Domestic Mutual Fund • Managed Accounts

Investment • Banking Services • M&A • ECM • DCM • Private Placement • Institutional Equity Sales • Retail Equity Sales • Market Entry Strategy

Principal Strategic Investments

18 Iran Investment Monthly September 2020 - Volume 14, No 163 Turquoise Partners 7th floor, Mahdyar Building, Salehi Street, Niavaran Ave. Tehran, Iran Tel: + 98 21 22 70 62 38 Fax: +98 21 881 07 746 Email: [email protected]

Firouzeh Asia Brokerage 5th Floor No. 11, Mirza Hassani St. Ghaem Magham Farahani Ave. Tehran, Iran Tel: +98 21 881 06 106 Fax: +98 21 881 07 746 Email: [email protected]

DISCLAIMER This document has been issued by Turquoise Partners for information purposes only and is not to be construed as a solicitation or an offer to purchase or sell any security or other financial instrument or to any particular category of investors in jurisdictions in which such an offer or solicitation to the public or to any particular category of investors is illegal. Although the material in this report is based on information that Turquoise Partners considers reliable, Turquoise Partners does not make any warranty or representation (express or implied) in relation to the accuracy, completeness or reliability of the information contained herein. Any opinions expressed herein reflect a judgment at the date of publication and are subject to change. Turquoise Partners accepts no liability whatsoever for any direct, indirect or consequential loss or damage of any kind arising out of the use of all or any of this material. Where Turquoise Partners provides information in the document, it is provided exclusively for information purposes. The information does not constitute any form of recommendation related to the personal circumstances of investors or otherwise, nor does it constitute any specific or general recommendation to buy, hold, or sell financial instruments and does not thus create any relationship between Turquoise Partners and any . The document may not include all the up-to-date information required to make investment decisions. Other more accurate and relevant sources of information may exist. Investors should thus diligently inform themselves about the chances and risks of the investments prior to taking investment decisions. In addition to the financial aspects, this should include, in particular, the legal and tax aspects of the investments. It is strongly recommended that any potential investor should contact a financial adviser and, where required, a lawyer or tax adviser. Furthermore, it should also be considered that the future performance of financial instruments and their return cannot be inferred from their past performance. The value of investments may go down as well as up and investors in financial instruments should be capable of bearing a total loss of investment. Neither Turquoise Partners nor any third party content provider shall be liable for any errors, inaccuracy, delay or updating of the published content of the provided document. Turquoise Partners expressly disclaims all warranties as to the accuracy of the content provided, or as to the use of the information for any purpose, as far as legally possible. This material is for the use of intended recipients only and neither the whole nor any part of this material may be duplicated in any form or by any means. Neither should any of this material be redistributed or disclosed to anyone without the prior consent of Turquoise Partners. PERSONS DOMICILED, RESIDENT OR BASED IN THE UNITED STATES OF AMERICA ITS TERRITORIES OR POSSESSIONS OR WHO MAY OTHERWISE BE CONSIDERED AS UNITED STATES PERSONS, INCLUDING REPRESENTATIVES OF UNITED STATES COMPANIES OR NON-UNITED STATES SUBSIDIARIES OF UNITED STATES COMPANIES SHOULD NOT CARRY OUT ANY ACTION IN BREACH OF U.S. SANCTIONS LAWS.

19 Iran Investment Monthly