Iran: Investing in One of the Best-Performing Stock Markets (w/ Raoul Pal & Maciej Wojtal)

RAOUL PAL: Maciej, it is good to get 
you back on Real Vision. It has been a   while since we have talked about Iran. Iran is 
a place that I have been intrigued with ever   since I went there back in 2011. I started 
looking at it and realizing it was like,   there is a big, vibrant economy that is not 
connected to the outside world very effectively.   It was one of these opportunities that felt like 
Russia did in 1990, or the opening of China,   where it is not a third world economy, it 
is actually quite advanced but there is no   investment capital into it really.

You are one 
of the few people who invest in the market.   What is your top-down thesis? Why did you 
start investing in Iran? MACIEJ WOJTAL:   Well, I got interested in 2016 when the 
nuclear deal was signed, and I never looked   at it before. I knew obviously, about Iran, 
as in Persia and 1000s of years of history.   I did trade many frontier markets from Vietnam, 
to Kenya, to Philippines and so on. China, it   sure is very early, but Iran was always something 
that no one could touch so we did not do anything.   In 2016, I got interested. I had never met an 
Iranian in my life prior to my first trip there,   actually, so I had no bias. I was absolutely, 
okay, let us just see what is there. I realized   that, okay, the stock market is– no, okay, the 
stock market was later, but the top-down macro   picture was amazing. You have this big country, 
like right now, almost 84 million people,   where the demographic structure is beautiful. 
Median age, 30 years. You have probably 25   million people employed, two and a half million 
unemployed, a couple of million students,   and then kids up to 18 years old are another 
25 million.

This will become the next wave   of employment coming into the market over the 
next 20 years, 18 years. Then they are educated.   You start reading about it, and you start 
meeting people, and you sense that the level,   the quality of people that you are meeting is 
amazing. Look, on my first trip to Teheran, I did   not know anyone there. I just scheduled a couple 
of meetings with brokers and with local banks   to open accounts for myself. Then I was going 
by myself to the local restaurants. TripAdvisor,   best restaurants in Teheran, and I was on my own. 
Waiters were asking me where I was from, I said,   from Poland. Then they started talking to me about 
Polanski, Kieslowski, the Polish film directors,   and one guy started chatting in Esperanto, because 
it was a Polish Jew who invented Esperanto, so you   guys in Poland probably know something. Then it 
was his hobby. That is funny, but that just shows   you the level of people that you are meeting. This 
was great. Then the economy, I knew that they had   the biggest combined oil and gas reserves in the 
world, but that was only 15% of GDP.

It is not   your typical frontier market that when it opens 
up, they are going to start producing textile.   No, they produce million cars per year. They have 
advanced manufacturing of many different products,   not all of them may be are advanced. The spare 
parts for airplanes are big problems, so you want   to avoid the domestic flights over there, but in 
general, it looked as a big, diversified economy,   that has been under sanctions one way or another, 
basically, since 1979. They missed on everything   good that happened in emerging markets since then. 
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I don't 
think it's something you can afford to be without.   MACIEJ WOJTAL: one way or another, basically, 
since 1979. They missed on everything good   that happened in emerging markets since then. 
Globalization, access to foreign financing,   interest rates going down, and they have good 
potential. Not only does commodity resources,   but human resources definitely 
that will allow them to catch up.   For European companies, this is right now, 
the best place to place their factories, to   take advantage of very cheap and qualified 
labor, salaries are lower than in Vietnam.   After some time, this will become a very 
important consumer market.

All this in   2016 plus the potential tailwind coming from the 
nuclear deal signed by the Obama administration,   and then the most exciting thing for me was 
obviously the stock market because it does not   happen too often that you go to a new country that 
is opening up, and there is something to do for   you as a portfolio investor. Normally, you can go 
and build a factory, maybe like launch a startup.   Here, you had 600 companies listed. Daily 
liquidity of around $100 million at that time,   and the lowest valuations in the world, and I mean 
five times earnings, maybe four times earnings,   no debt, no one has any debt. Those earnings are 
growing, the market is super inefficient, because   it is dominated by retail investors. There are no 
foreign investors.

It is less than half a percent   of the market cap. On top of that, the country has 
the worst PR in the world. It is truly mispriced.   On my first trip, I opened a couple of brokerage 
accounts for myself. I opened a bank account,   then I transferred like 10,000 pounds just to 
test if it is actually working. It has worked,   so I decided to quit my job and launch a fund that 
will give people access, Western investors, access   to this market very early, before all the 
big institutional investors are allowed   to trade. RAOUL PAL: What most people do not 
realize is actually, people– foreigners, not US,   but Europeans are free to open up brokerage 
accounts, and of doing it, and how to manage that.   What was really interesting is my introduction is 
I was invited by one of the Iranian investment,   the Anglo-Iranian investment bank, [?], because I 
had written about it saying, this is the world's   cheapest market, and same conclusion as you 
got, holy shit, the demographics are incredible.   It is an amazing place. I met guy on a bus 
in Iran, who is one of the smartest people   I have ever met.

He is an Italian count. 
I said, what are you doing here? He was a   relatively older gentleman. What are you doing 
here? Because I was in Russia in the 1980s.   Because I know this, what you are saying with the 
small frontier markets, but this is actually a big   frontier market that everybody– He said, well, 
I saw they were launching this investment bank,   so I reached out to them.

As their first 
customer, I decided to ask them for a stake in the   business. I said once, why would you want that? 
Because, well, I quite like being a gatekeeper,   I take tolls. If this is the only vehicle 
allowing people in, I want a part of it. I said,   so what did you actually do? He goes, oh, well, we 
made a bunch of equity investments. He said, but   they ran out. I did not even really look at it. I 
said, so what were you doing? He said, yes, I did   not really want a piece of an investment bank.


did not really want the equity portfolio. I wanted   direct access, and I knew that they could get it 
for me. I said, okay, what did you do? He said,   I bought 40% of the second largest insurance 
company in Iran, for a PE of three, because   it had a dividend yield of 25%. He said, I 
threw off so many cash. I said, what do you   know about the insurance company? He goes, the 
Iranian insurance market is nothing. He goes,   I just knew it had the second biggest balance 
sheet, and it was just going to throw off cash.   I said, so what did you do with the cash? He goes, 
well, I bought 40% of one of the sugar companies,   just from the dividends and just the flow, and he 
was paying PEs of three, four, five, six, seven.   Literally things that nobody else has ever seen in 
their careers, except early investors in Russia,   and maybe very early investors in China.

Then 
I realized how big this opportunity was, that   this was a long term, secular opportunity. Like 
you, I was super bullish in 2016 with Obama   signing the deal. Then it all went on hold. 
What happened to you? It all goes on hold,   you must be going, I just started a whole business 
on this. What do I do? MACIEJ WOJTAL: Yes. Look,   a lot of our peers– there were a couple of 
other funds that were launching around that time   and they all gave up basically. I know that people 
are liquidating their position. We decided to stay   because, well, we looked at it very long term. 
I looked at it very long term. This is not a   trade. This is a thing for the next decade, at 
least, and we wanted to have exposure.

Also,   there has been a lot of history of the local 
market that you can study. You can see how   share prices have behaved over the last 15, 20 
years for different currency regimes and different   inflation regimes and so on. It looked that when 
you are buying up the right valuation, you should   be fine, obviously with volatility. What hit us 
in the first year was the currency dropped by 70%   in our first year of operations. We managed 
to lose only around 15 in Euro terms, because   we figured out how to indirectly hedge 
the portfolio, but we basically had to   redo the whole strategy from scratch. I 
was starting with basically what you were   describing. I had this utility company that 
was trading at four to five times earnings,   paying most of its earnings as dividend. 
We have had around 20% dividend yield.   The best thing was that most of its contracts were 
priced in Euros, so it was supposed to be also   hedged in Euros, and no debt, a utility without 
any debts. We had those companies that we just   love, or some of these takeover targets. You 
are buying a company that makes small trucks,   has 60 or 70% of the whole Iranian market, and 
it was valued at less than 100 million dollars.   It just did not make sense.

When things changed, 
when sanctions arrived, and then basically,   when the currency started depreciating, we got rid 
of everything that we liked from the portfolio,   and we just focused on one simple thing. 
We were building basic models of companies   to understand who has the biggest 
sensitivity of EPS to the dollar price.   Most of the market cap of the Toronto Stock 
Exchange is long the dollar basically. Very often,   you just have dollar assets that just happened to 
be listed in Teheran.

That is why when you look at   the 15 years of history of the index, it has done 
pretty well. The main index is since 2008, and the   annual performance, average annual performance is 
around 13% in dollars, that is the total return.   That is probably around S&P or maybe even better, 
with bigger volatility, obviously. Imagine if,   when you are an exporter, the dollar rallies by 
50%, your revenues go up by 50%, but your revenues   go up much more because of operational leverage. 
We were looking for those companies that have   pure export exposure, no problem with sanctions, 
because some of them were hit by sanctions, but   not all of them, and highly geared to the change 
in the FX.

That worked. In the worst quarter,   when the rial just went down by 50%, our 
stock portfolio in local currency doubled.   We were able to show after this quarter I think 
plus one in Euros, which was super relieving.   It actually works. There is obviously no magic in 
it. The higher the dollar, the more competitive   the exporters are. Some of them, if they are 
state-owned, and sell to Japan or South Korea,   they were hit by sanctions, so the volumes went 
down, but many of them operate in the region,   and the region is actually quite a big part of the 
world. Iran, plus all the neighboring countries,   is more than 500 million people. Iran is 
really well connected. Iraq, Afghanistan,   you have 80 million people there, not producing 
much, but they consume, and they have to import   most of the stuff they consume.

It very often 
comes from Iran. Then you have Pakistan, Turkey,   up to Uzbekistan, where people speak Farsi as well 
as a second language. Iran is well connected many   of those companies export in the region, those 
products are usually not affected by sanctions.   The lower the rial goes, the more competitive 
they are. This was one thing that we learned   how to hedge the portfolio basically. 
Then what we understood was that   the biggest impact in terms of where the sanctions 
had the biggest impact on in which industries,   of earnings or which companies was on a domestic 
producers. Why? Because imports collapsed.   Not only because of sanctions, then because of 
rial plummeting, then even Chinese producers were   no longer competitive.

Also, it was difficult to 
find logistics, to make payments, insurance and so   on and so on. What that meant, in many product 
categories like consumer staples, for example,   local demand went to local producers and the local 
producers found themselves in a situation where   the competitors are gone, basically. Even 
though the market as a whole was not growing,   those guys were gaining market share. We had a 
couple of ideas which companies could benefit,   and the great thing is actually that you get a 
lot of data in Iran, so you can be really data   driven. You have some hypothesis, and then you can 
just check it, wait for the data, and confirm it   with the data. We were building small positions, 
and then waiting for monthly data. What type of   data will you get? Obviously, you will get annual, 
quarterly, in a similar format. These are not   the same reporting standards, but similar enough. 
Then you also get pretty granular monthly data,   where you get sales updates broken down into main 
product categories, and then into volumes and   prices. Every month, we could see what are those 
companies, what was happening to the volumes,   what was happening to the prices, whether they 
were able to raise them faster than inflation or   not and adjust our portfolio accordingly. 
It was an absolutely wild ride during the   sanctions and currency depreciation, but the 
system adjusts, those companies adjust to this   environment.

RAOUL PAL: Now, we have still 
got a relatively closed economy there.   Do you think the Chinese government and the US 
is going to reopen this? Are we coming into the   big opportunity that you and I have been waiting 
for in Iran? MACIEJ WOJTAL: That is the big hope,   and I think so, yes. It is not only Biden. It is 
also the Senate. You have the proper blue wave,   which would make pushing 
through legislation much easier.   With Iran, everything is complex. Iran 
is a complicated situation. RAOUL PAL:   It has been for 2000 years. MACIEJ 
WOJTAL: This will not change, I think,   this will not change. There may still 
be a couple of turns down there. Okay,   you have the right administration in the US. 
It is a huge change versus Trump, obviously.   You are going to have election in Iran, the 
presidential election is in June. We know   that Rouhani cannot run because he already had two 
terms, so there will be a new president. We do not   know who might become the president, because they 
have those very special rules around elections.   It is supposed to be a democratic election, but 
the candidates have to be approved by a special   council and this council only announces its 
decision around two weeks before the election.   Then there is no time for campaigning.

It is 
really odd, but this is how it works there.   What we know is that most likely, the new 
president, potentially also the new cabinet,   will not have such a strong relationship with 
the ex-Obama negotiators, which are basically on   Biden's team at the moment. It will 
be interesting to see if they try to   make something happen prior to the Iranian 
election, but probably not a new deal. Because   I would expect the US to want to secure something 
strong and long term, so we need to have a   new government in place. They may try actually 
to perhaps influence the election somehow to   maybe tilt it more towards the reformist types who 
would want to have a deal. They could start with   unlocking some funds that Iran has in countries 
around the world, and that were never paid for   the products that they offer. They have a half 
a billion in South Korea, a couple of billion   in Japan and so on. They are lying in local 
banks that are just unable to send it over,   or they could introduce some temporary 
sanction waivers, for example, for oil sales.   I would expect to see some positive moves from 
the US towards Iran, but new deal or reactivation   of JCPOA probably will have to wait for the new 
Iranian government.

RAOUL PAL: What is your sense,   talking to Iranians, on the appetite for reformers 
versus non reformers? Because that has always been   the flip. Rouhani has been a reformer in general 
and has been generally moderates, what do you   think the feeling of the country is right now? 
What do they want? MACIEJ WOJTAL: First of all,   when it comes to politicians, I do not think that 
the real difference is so strong that you have   really reformist camps and really conservative 
camps. They are all part of the same establishment   with a bit different faces. At the end of the 
day, everything is up to the Supreme Leader,   every major decision. When it comes to the mood 
on the street, people were super optimistic   under Obama. Then they got tired.

During the last 
election to Parliament, the turnout was really,   really low, which was in strong contrast 
to the presidential election before.   People just got tired, because they believed in 
the reformers camp, they believed in JCPOA, this   did not deliver, so they did not vote again. They 
said, it does not matter, really. That is why you   have a very conservative parliament in Iran right 
now. I think this could change if Biden– imagine,   we know the rhetoric of Trump, very aggressive, 
like people are almost expecting a war every week.   Now, we imagine Biden going out smiling, saying, 
look, if we play this right, we may have a deal at   some point down the line. I think this would be a 
huge change that would bring back the optimism and   the faith that things could improve. RAOUL 
PAL: What is the relationship– is there any   relationship with– well, what is the relationship 
between Saudi and Iran? Because that has always   been a stumbling block for the region, and also, 
Israel and Iran? Where are those right now? MACIEJ   WOJTAL: Saudi and Iran is something ancient, 
I see.

Because these are Shias and Sunnis.   Same Muslim religion, but two camps, who are 
still arguing who is the most important, Imam   have some really fundamental differences when it 
comes to religion. It is some detailed aspects.   This is one thing, but another thing is that my 
sense is that Iran used to be a superpower in   the region, and perhaps some countries around in 
the region would prefer that Iran stays in terms   of the size of the economy as it is, so would 
not want to see it grow and develop, hence,   high tensions. My view is that okay, they may 
want to see the status quo remain as it is,   but there would not be appetite for a big 
conflict in the region. Last year, there was   maybe not a conflict, but it went towards a 
military conflict maybe. When the tension rose   and Iran, we do not know if it was 
Iran, but people assume it was Iran,   send the drones to fire at Saudi Aramco refinery, 
and it shut it down, basically. That is most of   Saudi's GDP, such an easy target.

This is just a 
refinery. All the countries in the Gulf region,   the really important targets are water 
dissemination tanks, electricity power plants.   They understand that the risk for each of those 
countries is huge of having like an open conflict   in the region. I do not think that there is a real 
appetite to go to war for many of the Gulf states.   Actually, the relationship improved. I read 
about some diplomatic missions that went from   UAE to Teheran, then Saudi started talking about 
having a ceasefire in Yemen.

There was actually a   progress after those tensions. Now, there seems 
to be some problems with Qatar as well. I would   not expect any problems like real problems over 
there. With Israel, I do not know. Israel has been   vocal and consistent about one thing, that they do 
not want any other country to have nuclear weapons   in the region. I believe that they could do 
anything to make sure that this is the case.   However, when you look at the relationship 
between the populations, the biggest Jewish   population in the region outside of Israel is in 
Iran. RAOUL PAL: It is the oldest in the world,   outside of Cochin in India. MACIEJ 
WOJTAL: Yes, exactly. I visited many   mosques, churches in Iran, in different cities in 
Iran, Jewish synagogues, and there is no police in   front of them.

Everyone is doing his thing. People 
are tolerant and there is no problem with other   religions. I do not think there is a problem, like 
a fundamental difference in views of the world   between the populations. It is the government's 
thing. Also, going back to Saudi and Iran,   Saudi has a very young population. It is 
the same for Iran. The young generation,   they do not really relate to the same values 
or the same historical events as the older   populations, which is visible, I think, in Iran 
when it comes to how young people approach the   revolutionary values versus the western values 
and so on. It is the same in Saudis. This could   make a shift. I am not saying that I would 
expect some big changes, some massive changes   to a different situation, but gradual 
changes to adjust the systems to work   well for the younger generation.

I think this will 
be happening. RAOUL PAL: In Saudi, MBS is focused   internally now on trying to change– he needs 
to create job opportunities for young people,   because they have got the same baby boom 
across all of the Middle East, essentially.   The Islamic world essentially has a baby boom, 
plus India and a couple of other countries.   Saudi looks like it wants to rebuild its 
economy. It does not feel like it really wants   to create geopolitical tensions with Iran. I 
think, as you say, if Israel can broker a deal   that Iran does not get nuclear weapons but 
can have nuclear energy, maybe that is okay.   Maybe the region [?].

Where does Turkey play 
into this as well? That is the other regional   superpower. MACIEJ WOJTAL: Just one comment 
about Israel anyways, I did get a picture   most of foreign investment will be coming 
actually, probably from the US and Israel,   directly or indirectly, because they understand 
that the opportunity of the local market. You   were asking about Turkey? RAOUL PAL: As well, 
yes.

Israel, yes. You think direct investment,   I think the Israelis can use it as a country to 
manufacture cheap products in as well, because the   skill set is very high, and Israel is going great 
guns right now. Yes, Turkey. How does Turkey fit   into that? That is the other regional superpower. 
It has always historically been Turkey, Saudi,   and Iran, and I guess Israel. MACIEJ WOJTAL: Now 
to some extent, Russia as well, which is [?] in   the region. RAOUL PAL: India, China, and Russia, 
but first, Turkey. How does Turkey plan for this?   Because they historically have a trading 
relationship, and lot of banking is done through   Turkey.

MACIEJ WOJTAL: Yes, that is why many 
Turkish banks are on the sanctions list. Look,   Turkey and Iran are interesting, because they are 
the same size in terms of the country, the same   size in terms of population, but I would say the 
opposite in terms of trade balance. Turkey is a   large, diversified economy, but they have to 
import all of its energy needs. Every month,   whatever they do, they need to spend a couple 
of billion dollars on getting energy into the   country. Iran is similar size, and its economy, 
the non-energy economy could be same size as   Turkey, meaning six times larger than it is right 
now. At the same time, they have those large   oil and gas resources. In a situation without 
any sanctions, they would be receiving a couple   of billion dollars per month just from selling 
oil. This is the natural connection between   those countries. Iran could be supplying 
energy to Turkey, like to the rest of Europe.   I do not think that Turkey is perceived as a major 
partner for Ira, inside Iran.

They do have common   interests in certain regions, in Syria, 
in the Kurdistan region, so north of Iraq,   where the Kurdish minority goes from Turkey 
to Iraq to Iran, and I guess none of those   large countries would want to see a new country 
showing up there, so they have to stop them. Now,   those countries one way or another cooperate or 
not cooperate, but that is it. I do not see any   stronger connection between them.

RAOUL 
PAL: India and Iran historically had   strong ties in the past. Obviously, the 
Mughal emperors of India were Persians.   What is their relationship like? Because Iran 
has all the oil and gas that India needs.   It has a bunch of things that India can do 
with. It seems like it is an obvious place.   They both have these young populations, potential 
high growth, slightly inflationary economies.   What is the relationship like between India and 
Iran right now? MACIEJ WOJTAL: The energy trade   is dominated by sanctions right now. Iran, in 
order to sell oil, they keep on selling oil,   we just do not know how much because most of it is 
smuggled basically. To actually entice someone to   buy it from them, they need to offer discounts. 
Maybe they are selling to India, for example,   at a discount, and India may be buying, but also, 
other countries were more eager to buy Iranian oil   and potentially face some sanctions consequences, 
when the oil was much more expensive so then this   discount matters more, especially for countries 
like India, where high oil prices always have an   impact on their currency, on their current account 
and then inflation and so on.

What they did,   I remember that initially, when the sanctions 
were introduced, Iran was able to sell to India,   people selling to India, and was getting paid 
in barter in any other product, like even rice,   just not to use dollars or not to use the banking 
system, basically. It was working fine. Then India   was also building a port in south of Iran, just 
to go around Pakistan and be able to ship products   directly to Iran, and then to Afghanistan. 
Then there, there was a lot of cooperation.   Traditionally, India has been one of the 
biggest trading partner of Iran. RAOUL   PAL: I just think as it opens up, it is a huge 
market. The other two interesting players,   it is amazing. I do not know if you have read 
the book, The Silk Road by Peter Frankopan, which   basically takes the history of the world basically 
from Iranian eyes, without being Iranian, but it   is saying, okay, if the world centers around here, 
what does it look like? It is fascinating.

The   other players in the region always have been 
Russia and China. What are they up to? China   is basically allowed to freely trade, because it 
does not care about Swift, is that right? MACIEJ   WOJTAL: They have banks in China that are on 
sanctions list, because these are the banks that   do all the sanctions activities, basically. They 
cooperate with Iran. China is potentially huge for   Iran. China is a plan B to the nuclear deal with 
the US. China's approach is not that they want   to have some alliance with Iran. No, they are very 
friendly, business friendly with all the countries   in the region. Also with Saudis. They need to 
secure their energy supplies, and they want to pay   for energy in something else than dollars.

They 
do not control the dollars, which means that   at some point, you could imagine a scenario 
where they just cannot afford to buy   what they require in terms of commodities. 
They are taking advantage of Iranians' weaker   negotiation position and try to persuade 
Iran to sell oil and get paid in yuan,   in Chinese currency. This is one thing, but China 
is going further. Look, Iran is obviously on this   One Belt, One Road initiative, and already, I 
think two or three years ago, they opened up a   train connection, it is a freight train connection 
between Shanghai and Teheran so they can ship   products very easily. Now, they also, and it was 
announced last year without details yet that they   are talking about a big decade long investment 
program that China wants to do in Iran.   They said that China wants to invest $400 billion 
dollars in Iran's infrastructure, which, for Iran,   is an amazing thing. They need it. Everything 
that you spend on infrastructure in Iran will   be productive.

It will fuel growth for the next 
two decades. The Chinese want to build highways,   ports, in order to help trade between Asia, 
between China and Iran and the whole Middle East.   $400 billion. It is a lot. Iran's GDP, it is hard 
to calculate it when the currency is moving so   fast and so dramatically, but it is, I do not 
know, let us say it is 150 billion right now,   anywhere between 100 and 200. 400 billion 
is a lot of money. It is bigger than the   cohesion funds in the EU that Eastern 
Europe got from the Western Europe.   It is bigger than Marshall Plan after the 
Second World War, and most of it would be   upfront, so they would spend much more at the 
beginning than at the end of this 25-year long   period. Also, obviously, Iran needs to pay for 
it. They would pay in discounts on oil price.   Which is great, because otherwise, this 
oil will just stay in the ground.

They will   not be able to sell it because of sanctions, 
because of whatever. They can actually get it   out of the ground with Chinese help, because 
Chinese would also invest in the oil production.   Okay, fine, they probably sell it at 30% discount 
or whatever. This is how they pay for something   that they really need. This is a tremendous 
opportunity to be– RAOUL PAL: Is that going   to go ahead? Where is the latest update 
on that? Because that sounds fascinating.   MACIEJ WOJTAL: A couple of months ago, like fourth 
quarter last year, the foreign minister of Iran   announced the deal as signed, but no details were 
shown. We will see. You do not know. Actually,   if this is the case, and this could really 
go through, this makes Iran's position   when talking to the US much stronger, because 
they actually have a plan B for the first time   in ages. RAOUL PAL: If they do accept Chinese 
money, and they get some permission to open up,   they are going to get Western capital 
as well.

That is one hell of a story.   If [?] capital. MACIEJ WOJTAL: Yes, that would 
be best of both worlds. My feeling is that   Iranians, their aspirations, they 
feel closer to the European culture,   and would like to get more European 
investment, or Western investment. However,   maybe this has changed after JCPOS, and after it 
just did not work out, then there was a lot of   hope. Then it was crushed, and it did not work 
out. Maybe right now, it will be more about,   okay, what is the better deal? They also, okay, 
what Iranians are saying, is that okay, they   are observing every country that makes a deal with 
China, and many of those countries are not looking   great, because they need to leverage a lot of high 
debt to pay for the constructions that Chinese   require from them, and then they have problems and 
so on.

They also see that Chinese are potentially   colonizing Africa again, and they would not 
like to become a colony. There is this very   strong sense of strong pride. RAOUL PAL: They also 
brought their own workers into the country to do   the work as well. In these African nations, this 
huge pool of Chinese workers, the locals did not   actually benefit. MACIEJ WOJTAL: It is not only 
this. It is not only workers. It is also security   forces.

They will not call it as the Chinese army, 
but there will be Chinese people with guns on the   ground. This is actually what was hotly really 
debated in the parliament in Iran, that they do   not want– it is a sovereign issue. They do not 
want other troops in their country. Then I was   having conversations, obviously, it is not the 
same thing, but I was having conversations,   just showing them in different perspective and 
I was saying, look at the European countries,   they compete with each other to have military 
bases of the US or some other countries.

It is a   different perspective. RAOUL PAL: Finally, Russia. 
How does Russia fit into this as well? Because   that is another key player in all of this. 
MACIEJ WOJTAL: Yes, absolutely. There is that   the cooperation could be in weapons, for example, 
sales. Iran needs to buy weapons. Russia wants   to sell it. The UN embargo is already gone, so 
they should be able to make use of this, which   obviously the US will not like it, no one will 
like it, but neither of these countries will care,   I guess. Then Russia is helping to sell Iranian 
oil.

Russia is selling its own oil, but I guess   how they do it is they buy Iranian oil, they use 
Iranian oil and just sell more of their own oil   outside in foreign markets. RAOUL PAL: Russia has 
mainly dedollarized so there is very limited the   US can do about Russia, I guess. MACIEJ WOJTAL: 
Well, commodity trading is still dollarized.   The Russia discovered what Iran discovered many 
decades ago, after Russia was put on sanctions,   different types of sanctions, and it was 
difficult to export certain products to Russia.   They started producing them themselves. Suddenly, 
many industries are going through a renaissance,   like agricultural, for example. I was meeting some 
Russians in Moscow, and they were complaining that   okay, for some time, we could not get a 
really good cheese, French cheese in Moscow,   that was a problem.

Then they started 
producing their own really, really good cheese   with apples or many different products. They 
became more self-sufficient. Maybe this is the   reason why the Iranian economy is so diversified, 
and not relying on oil and gas entirely, because   they did not have a choice. They had to 
develop all those different industries   throughout the years. Right now, it 
is a completely different model than   the Russian model, for example, but still the 
GDP relies on commodity sales. RAOUL PAL: You   mentioned before about the potential use 
of crypto, we were talking off camera,   potential use of crypto, we have seen potentially 
crypto mining starting in Iran, and then using   the crypto rails with stablecoins and stuff 
to get around the Swift thing. What are you   seeing or hearing in that regard? MACIEJ WOJTAL: 
This is an obvious, obvious way to go. Because   the main problem for Iranian companies is 
that they are disconnected from Swift for   Iranian banks. This is blocking everything, even 
if companies are allowed– foreign companies are   allowed to do business in Iran, then they cannot 
get paid, basically.

Their Iranian partner has the   monies, is ready to pay for the service product, 
whatever, but is just unable to make the transfer.   This is such a common problem that requires a 
solution. What seems to be the best solution   is crypto because it does not require 
Swift. You can make transactions   using Bitcoin or stablecoins actually for paying 
for settlement transactions, something that is   less volatile than Bitcoin is better. That 
is why it is still bitcoins are becoming   popular. It is actually happening, not on a 
large scale. At least I have not heard about it,   but what I did see is that smaller companies, 
individuals, and then also smaller companies   are trading Bitcoin, paying with Bitcoin, 
or stablecoins, transferring money.

Iranian   families that want to help their families in 
Iran, an Iranian diaspora who wants to help their   families in Iran, they transfer crypto. Companies 
are getting paid in crypto. Iranians, initially,   there was no regulation around it. No 
one really knew how to treat crypto.   Those countries very often have this instinct 
to regulate things, that they want to control.   Initially, they banned crypto, but they changed 
the legislation, they actually legalized   mining. Before, mining was not regulated. 
Now, obviously, it was great for the miners,   because they were taking advantage of 
highly subsidized electricity rates. I think   Bitcoin mining at some point was the most 
profitable in Iran because the electricity   rates were the lowest in the world because of the 
subsidies, which obviously does not make sense   in the long term. It was actually wise that they 
regulated it. They said, okay, you can do mining,   no problem, but you need to pay some higher 
electricity rates without the subsidies.   Look, when you think about it, this is 
like them printing their own hard currency,   which they can use to pay to anyone that can then 
convert it to whatever fiat currency he wants.   You can use such crypto pairs and crypto to fiat 
crosses that never touched the dollar.

You can go   through crypto exchanges that are not located in 
the US, and then you are not violating sanctions.   Obviously, it is all, I guess, traceable and so 
on, but it is not a problem because you are not   doing anything wrong. You have this activity that 
you are allowed from the sanctions perspective   to do in Iran. You are investing or trading 
or whatever with them, and this is just the   alternative payment method that you are using. It 
is not only for Iran. Obviously, all the countries   that have problems with sanctions like Russia, 
Venezuela, China, to some extent maybe as well,   they could be using crypto to pay each other. 
RAOUL PAL: My final question is what is the   probability that we get the outcome that you 
and I have been looking for over the next   five years, that Iran is able to open 
up a bit more again? MACIEJ WOJTAL:   Look, I am optimistic.

I have been. I am 
looking at this long term. I think we are   going to get it over the next five years, but 
actually something else is more important.   You can make a bet that is very asymmetrical. You 
do not have to bet on the probability that yes, I   am super convinced, so I am going to go and invest 
in the country. No.

The valuations of local assets   do not price the good scenario at all. You had 
four years of Trump, the currency went down by   85%. Well, can it depreciate further? Of course, 
but unless there is some shock, I would not expect   a big drop of the magnitude that we have seen. 
Companies are operating under really difficult   environment. When there is sanctions with no 
access to some export markets, with no access,   obviously, to international finance, with no 
access to parts or inputs that they require   in some industries, and they survived. Not 
only they survive, they are actually managed   to grow their earnings, to grow their businesses. 
Those companies are super resilient. Think about   inventories, working capital many times 
bigger than your usual Western company,   so very inefficient, you could say, but this helps 
them to survive every scenario and still have high   margins and so on. When I look at the country 
and see what– and those companies– what they   actually managed to achieve under such test in 
a scenario, under sanctions of the most powerful   economy in the world and then I think, okay, so 
what happens if this opens up? RAOUL PAL: Best   performing stock markets in dollar terms over the 
last five years with all of [?].

MACIEJ WOJTAL:   Exactly. What might happen when this opens 
up? You are buying those companies right now,   after the recent correction in the market, you 
are buying at between four times and six times   forward next year earnings, with no debt, no 
nothing and the currency already depreciated.   You do not really have to be correct in terms 
of the probability of the nuclear being signed,   not to lose money. It shows you that you can 
make money even under sanctions. It is a very   asymmetrical, there is a lot of optionality. 
RAOUL PAL: Having seen Russia go through this,   which is the great example or even 
Poland. Poland, I think, went up 1200%.   I think Russia did more. All of these markets 
as they open, the opportunity to make money,   if they open, is gigantic. Iran has already been 
one of the best performing markets over the last   five years.

It has been volatile, but if you 
get any change, you have probably got a 15x   at least opportunity over 10 years. It is 
enormous. MACIEJ WOJTAL: There will be a bubble.   It is a big market. All the emerging market 
funds will want to have a piece of it. We have   a lot of passive money going in, a lot of active 
money, a lot of hedge funds money, but look,   the market in Poland opened up at three times 
earnings. First year, nothing was going on. Then   people saw, okay, it is actually a normal country, 
we can put some money into it, and it went up   from three times earnings to 30 times earnings. 
Why not? Plus earnings went up a bit, 1200%.   Same in China.

When they announced, 
the mainland, that it would open up,   it was still under Tiananmen sanctions. Before it 
actually opened up, but it was already announced,   it went up three times. Then after it opened 
up, an additional four times. Same in Russia.   It was the same story. It has not even started 
in Iran. The valuations are low. You have all   those positive scenarios, negative scenarios 
just materialized.

It went through, actually in   a pretty good shape. Yes, I am quite excited. 
Whether this is with Chinese or with the US,   I think there will be a deal but maybe there 
would be more deals than one. RAOUL PAL: I am   fascinated by the story. You have written articles 
for me, for Global Macro Investor, you have been   on Real Vision, and I just want people to keep 
it on their radar screens. Because trust me, you   do not get many of these in your lifetime. When 
it happens, it is a monster of an opportunity.   That is why I firmly keep [?], people read up 
to me and people say, why Iran? I said, you   will understand when it opens, is you go from a 
small economy of $150 billion to a trillion dollar   economy pretty fast. That is life changing. MACIEJ 
WOJTAL: Absolutely. That is a savior.

RAOUL PAL:   Brilliant, my friend. Thank you ever so much for 
catching us up on all of this. Super interesting   as ever. MACIEJ WOJTAL: Great. Thank you. It was 
a pleasure. RAOUL PAL: Okay, and good luck. Let us   see what happens. MACIEJ WOJTAL: Yes, thanks. Take 
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