Investing on Headlines: The Iran Nuclear Deal

May 12th, 2018, is a milestone date for international trade, as that’s when the Trump Whitehouse makes its decision on the Iranian Nuclear deal {Joint Comprehensive Plan of Action (JCPOA) on Iran} known to the world. Even though “Iran” might not be flashing red in your portfolios, the decision could have indirect impacts to some of your holdings in them.

Here are a few scenarios that could unfold come May 12th, with possible strategies that investors should consider.

Investment Scenarios

Unfortunately, given how close to the chest this U.S. administration holds all of its cards on this issue, it’s difficult to make specific recommendations on a particular buy, sell or hold strategy. However, here are a few scenarios that could play out, and what investors should consider doing with their portfolios, in the event that one of these outcomes does materialize.

Scenario#1: The U.S pulls out of the deal unilaterally

If this happens, U.S. investors will be completely shut out of any investing opportunities that directly or indirectly have to do with Iran. That’s because Executive Order 13059, enacted by the U.S. in 1997 which bars all investment and trade with the country, is still in effect.

Although it’s too early to tell the impact of Scenario#1 on your portfolio, you might want to consider lightening up on companies (both U.S and global) with investments in Iran. Sectors to be wary of include:

  • Oil, Gas, Petroleum
  • Financials
  • Aerospace (Boeing (BA)) – This US-based company has a $8B deal with Air Iran that could get scuttled

Scenario#2: The U.S and the EU jointly pull out of the deal

If this scenario should transpire, “lightening up” in Iran-centric investments isn’t an option. You should immediately consider purging all Iran-specific exposure to your portfolio. In addition to the two sectors mentioned, European companies are heavily re-investing in:

  • Renewables
  • Automotive
  • Mas-transportation (specifically Railways)
  • Nestle S.S (NSRGY) – This Swiss pharma/consumer product giant has already invested a lot in Iran recently, as part of its $150 million play by end of 2018

These are areas in your portfolio that you should revisit for Iran exposure – and exit.

Scenario#3: Hybrid – Neither Scenario#1 nor Scenario#2

While the first two are primary outcomes you might expect from a May 12th decision, there could be a “hybrid” scenario where the can is kicked further down the line, with Europe agreeing to work with the U.S and Iran to strengthen the existing deal, or draw up parallel agreements to cover some of the contentious points highlighted by the U.S.

In this case, your Iran-specific investments could see you receive a flat to gradually declining rate of return until there is greater clarity. The recommendation would be a Hold, with a cautious watch. But if you wanted a diversified Irian-centric investment vehicle while you waited, you could try a small position in Turquoise TSE 30 Index ETF.

Scenario#4: Europe, China and Russia decide to go it without the US

This is the most favorable scenario for Iran-centric investors, as it could see Iran-exposed portfolios experience an immediate uptick. However, there will likely be significant “noise” in the interim weeks and months, as the U.S lobbies for its EU partners to have a change of heart. You could (indirectly) benefit from investing in non-US companies, like:

  • Airbus (EADSY) – for Aerospace exposure – US investors could get access by investing in major indices like EURO STOXX 50, STOXX Europe 600, MSCI World, FTSE All-World or MSCI A&D
  • Total SA (TOTF.PA) – for Oil & gas exposure
  • Peugeot Citroën (PEUP.PA) – Auto exposure
  • China’s ZTE and Huawei Technologies – IT/Telecommunications: Both have been recent investors in Iran. In fact, Huawei has already signaled its intent to partner with AT&T (T) to offer its technology in the U.S. Perhaps an indirect Iran-play may then also be to invest in T?
  • Vodafone Group Plc (VOD.L) – This UK-based global telecom company has made recent investments in Iran’s ISP and telecom sector, where international analysts see huge growth potential

Investor beware

As part of your Iran-exposure review, you need to also look at individual holdings in global equity Mutual Funds and ETFs, for any sizable Iran exposure.

Investing on Headlines: The Iran Nuclear Deal

Worst case, if the U.S. feels slighted/betrayed by its European allies, it could impose sanctions on Euro-based companies with significant operations/relationships in the US. If that happens – although it is unlikely – then all bets are off! Prepare for a Pan-Atlantic trade war!! But what if the U.S decides that all’s good with the deal after all? Highly unlikely – but stranger things are known to have happened!