What’s keeping Foreign Money out of Iran’s Stock Exchanges?

By Navid Kalhor, for Al-Monitor. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iran Business News.

According to the UN Conference on Trade and Development’s 2015 World Investment Report, Iran saw troubling changes in Foreign Direct Investment (FDI) in 2014.

FDI inflow dropped by a third, while FDI outflow more than tripled; in dollar terms, Iran received merely $2.1 billion in inward investment and lost $600 million outward. Given that these figures include Foreign Portfolio Investment (FPI), they are disappointing.

The obstacles in the way of a greater influx of foreign money into Iranian capital markets can be divided into two distinct categories: domestic and external, with the former of far greater significance than the latter.

Some capital market experts argue that a key issue is the lack of a clear-cut vision on how to expand the debt market in the Islamic Republic’s sixth five-year development plan (2016-2021), which has been prepared by the Management and Planning Organization.

Issuances of Islamic sukuk and bonds under both the previous and current administrations were merely meant to prop up ailing government-backed organizations suffering from cash flow problems. As such, debt sales have never been geared to shift the focus of financing away from banks and toward capital markets.

The importance of having deep and diversified debt markets should not be underestimated. It can greatly accelerate the influx of foreign capital, and thus, ultimately positively affect the equity market. In addition, it can provide a buffer against the systemic risks prevalent at times of economic crisis. Yet development of the debt market continues to be neglected by policymakers.

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