OPPORTUNITIES IN TURKISH CAPITAL MARKETS

Hüseyin ERKANChairman & CEO

Istanbul Stock Exchange (ISE)

The 3rd Turkish-Arab Economic ForumJune 12-13, 2008, Istanbul

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Turkey: Gateway to Europe, Asia and the Middle East

Turkish economy has a growing potential in different sectors Property projects Telecommunication & Technology Infrastructure Projects (utilities, ports, highways)

Turkey stands to be a corridor in the middle of the GCC countries, Europe and Asia

Net FDI to Turkey in 2006-2007 is US$ 20 billion in each year (1/3 of the net FDI comes through the ISE)

The Turkish capital markets are highly liquid and appeal to foreign investors (high level of investor confidence)

Enhanced market infrastructure Legal framework in harmony with the international standards Technological infrastructure is strong and competitive

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Improving Macroeconomic Indicators

A stable political and economic outlook

Appropriate business environment for both FDI and portfolio investments

Successful privatization programs

Harmonization with the EU countries

Efficient banking and capital market system

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Investment Opportunities in Turkey     

Investors' Preference   What Turkey Offers

     

     

A well-developed banking sector   46 local commercial and investment banks

    4 participation banks

     

    Free movement of funds

Investment-friendly policies   100 % foreign ownership allowed

    Tax treaties with 86 countries

     

    Booming property market

Profitable investment opportunities   Development of the energy industry for the region

    Growing need for infrastructure development

    Project financing for fast growing companies 

    World's 5th largest bond market

A wide-range of capital market investment   ETF market is growing

instruments   New regulations for structured warrants and

    asset backed securities are on the way

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ISE’s Experience

Coordinator of the “OIC Member States Stock Exchanges Forum’’

President of the “Federation of Euro-Asian Stock Exchanges” (FEAS)

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ISE’s ExperienceRelations with the OIC Member Countries

57 Member States57 Member States31 Stock Exchanges31 Stock Exchanges8 Observers8 Observers

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OIC Member States Stock Exchanges Forum

OIC Member States Stock Exchanges Forum

(the first meeting was held on March 2005 in Istanbul) Aim: To promote cooperation among the stock

exchanges of the OIC Member States.

Out of 57 OIC Member States, only 38 of them have functioning stock exchanges. 16 out of 38 countries are the members of FEAS.

Working Committees (Technical & IT Committee)

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OIC Member States Stock Exchanges Forum(Proposals)

The definition and certification of the securities

Creation of regional market indices

Cooperation among regulatory bodies and other capital market institutions (i.e. clearing, custody institutions)

Cooperation with the existing federations

Organizing joint training and staff exchange programs

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Working Committees

Technical Committee (consists of 11 members) Creating Common Indices Promoting the creation of Islamic Depository Receipts (IDR) Cross-listing and Cross-membership Opportunities Exchanging Staff and Organizing Training Programs Defining Areas of Cooperation (i.e. Common trading platform) Questionnaire – Surveys for the assessment of the stock

exchanges

IT Committee (consists of 8 members) Assessment of technological levels of the participating stock

exchanges Establishment of a Data Center

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ALBANIA AZERBAIJAN (2) ARMENIA BAHRAIN BELARUS BOSNIA

HERZEGOVINA (2)

BULGARIACROATIA EGYPT GEORGIA IRAN IRAQ

JORDAN KAZAKHSTAN KYRGYZ REPUBLIC MACEDONIA MOLDOVA MONGOLIA

OMAN PAKISTAN (2) PALESTINE ROMANIA SERBIA MONTENEGRO

TURKMENISTAN TURKEY UKRAINE UNITED ARAB EMIRATES UZBEKISTAN

MEMBER EXCHANGESMEMBER EXCHANGES

29 Countries29 Countries32 Member 32 Member ExchangesExchanges8 A8 Affiliate ffiliate MMembersembers

FEAS - FEDERATION OF EURO-ASIAN STOCK EXCHANGES

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How FEAS Serves to the Needs of Member Stock Exchanges ?

Promotes mechanisms for reliable, transparent and continuous trading and settlement

Creates greater awareness and visibility for the regions stocks and investment opportunities

Helps to promote the listing of home market investment grade companies in the regional market and encourages them to get involved in regional indexes (i.e. Dow Jones)

Provides network and updated information to the new members at the region, with meetings, web applications & publications (with the joint work of FEAS, ISE and OECD) “Best Practices for the Development of Stock Exchanges in

Transition Economises” “SME Financing: Alternative Sources of Finance”

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How FEAS Serves to the Needs of Member Stock Exchanges ?

Helps create linkages among: The regions’ intermediaries The regions’ data providers The regions’ settlement and custody institutions

Creates a centeralized training hub for FEAS members in order to encourage research and regulatory implementation via bilateral exchange program

Promote Corporate Governance

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FEAS Region Statistics

Statistical Comparison / FEAS Region 2004 2005 2006 2007

Number of Companies Traded 8.003 8.348 9.057 9.498

Market Capitalization (US$ Millions) 377.280 638.041 690.455 1.065.337

Total Volume (US$ Millions - Stocks) 273.616 467.903 505.163 615.733

Total Volume (US$ Millions - Bonds) 314.833 429.311 380.662 478.517

Source: FEAS

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Istanbul: A City with an International Financial Center Potential

Financial centers

Potential candidates

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ISE’s Market Performance

Stock Market2007

(USD Billion)2001

(USD Billion)

Number of Intermediaries 104 intermediaries 126 intermediariesNumber of Companies Traded 319 Companies 310 CompaniesTotal Market Capitalization 290 48Daily Average Trading Value 1,2 0,3Total Trading Value 300,8 80,4 Bonds and Bills Market

Daily Average Trading Value 9,1 2,6Daily Average OTC Trading Value 2,2 3,3Total Trading Value 2.831,1 1.517,4

Total Daily Average Trading Value 12,5 6,2Total Markets Trading Value 3.131,9 1.597,8

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Istanbul attracts and appeal to Major International Financial Institutions

Investment Banks that Bought Intermediary Institutions in Turkey

Buyer Seller New Name

Citigroup Opus Menkul Citi Menkul DeğerlerDeutsche Group Bender Menkul Deutsche MenkulMerrill Lynch Tat Menkul Merrill Lynch MenkulMorgan Stanley Arıgil Menkul Morgan StanleyLehman Brothers MNG Menkul Lehman BrothersCredit Suisse Baran Menkul Credit Suisse MenkulUBS Arı Menkul UBS Menkul DeğerlerBGC Holdings As Menkul BGC Partners MenkulEFG Eurobank HC İstanbul Menkul EFG İstanbul MenkulCredit Agricole Cheuvreux Form Menkul Credit Agricole CheuvreuxOrion Holding Overseas İktisat Menkul Orion InvestmentUnicorn Investment Bank Inter Yatırım Unicorn Capital

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Market Capitalization (Billion USD)

Source: WFE, S&P

Arabic Countries Average; 148

Turkey; 287

0 500 1.000 1.500 2.000 2.500 3.000 3.500 4.000

BermudaSri LankaMauritiusSlovakia

IranHungary

ArgentinaPeru

ColombiaPhilippinnes

EygptArabic

ThailandPoland

IndonesiaChileIsrael

TurkeyMalaysia

MexicoTaiwan

China-She.S.Africa

KoreaBrasil

India N.S.EIndia-Bombay

China-Sha.

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Market Traded Value (Billion USD)

Source: WFE, S&P

Arabic Countries Average; 121

Turkey; 296

0 500 1.000 1.500 2.000 2.500 3.000 3.500 4.000 4.500

SlovakiaArgentina

IranPeru

ColombiaPhilippinnes

HungaryChile

EygptPoland

IsraelIndonesiaThailand

ArabicMexico

MalaysiaTurkey

India-BombayS.Africa

BrasilIndias N.S.E

TaiwanKorea

China-ShenzenChina-Shanghai

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Number of Listed Companies

Source: WFE, S&P

Arabic Countries Average; 149

Turkey; 319

0 1.000 2.000 3.000 4.000 5.000

HungaryBermudaMauritiusSlovakia

ColombiaArgentina

ArabicPeru

Sri LankaChile

PhilippinnesTurkey

IranMexicoPoland

IndonesiaBrasil

S.AfricaEygpt

ThailandIsrael

China-She.Taiwan

China-Sha.Malaysia

IndiasKorea

India-Bom.

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Arab Countries’ Stock Market Capitalization(2005-2007, Billion USD)

1.266

866

1.331

400

500

600

700

800

900

1000

1100

1200

1300

1400

2005 2006 2007

Source: Standard & Poors

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0

50.000

100.000

150.000

200.000

250.000

300.000

2007

2006

2005

Arabic Countries Average Turkey

Market Capitalization (Million USD)Arabic Countries Average vs. Turkey

Source: S & P

76,4%

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0

50.000

100.000

150.000

200.000

250.000

300.000

350.000

2007

2006

2005

Arabic Countries Average Turkey

Market Traded Value (Million USD)Arabic Countries Average vs. Turkey

Source: S & P

33%

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Comparison of Bonds & Bills Markets Traded Value (2007, billion USD)

Source: WFE

Istanbul SE; 479,89

0 1.000 2.000 3.000 4.000 5.000 6.000

Australian SEBursa Malaysia

Tokyo SEShenzhen SE

Cairo & Alexandria SEsTSX Group 1

Singapore Exchange 3Shanghai SE

Irish SEBuenos Aires SE

#N/AOslo Børs

Santiago SESw iss Exchange

Euronext Tel Aviv SE

Borsa ItalianaDeutsche Börse

Korea Exchange 2Istanbul SE

Colombia SEOMX Nordic Exchange

London SEBME Spanish

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Index Returns(2007/12, USD based)

Source: WFE

72%

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25

ISE National 100 Index(USD based)

Source: ISE

0

500

1,000

1,500

2,000

2,500

3,000

19

86

19

87

19

88

19

89

19

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19

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19

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19

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19

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19

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Comparison of ISE-100 with MSCI Indices (2005/6=100 USD based)

Source: Bloomberg, Morgan Stanley

0

50

100

150

200

250Ju

n-0

5Ju

l-05

Aug

-05

Sep

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Oct

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Nov

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Mar

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Apr

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May

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MSCI Developed MSCI EmergingMSCI ARABIAN COUNTRIES ISE National-100

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P/E Ratios

Source: Bloomberg

12,414,2

13,210,1

13,513,8

13,710,5

15,117,0

15,514,8

16,016,516,8

15,517,3

7,517,4

15,317,5

14,120,1

14,720,3

15,028,0

19,018,616,4

0,0 5,0 10,0 15,0 20,0 25,0 30,0

S.Africa

Hungary

Russia

Poland

Brasil

M exico

M SCI World

Czech Rep.

Turkey

M SCI Emerging

Korea

Thailand

Argentina

India

M SCI Arabian Countries

30.05.2008

31.12.2007

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Foreign Participation in the IPOs

 Total Revenue (Million USD)

Foreign Participation (Million USD)

Foreign Participation(%)

1998 383.35 280.96 73%

1999 90.72 10.06 11%

2000 2,806.22 1,930.01 69%

2001 0.24 0.02 8%

2002 53.95 20.63 38%

2003 11.37 - 0%

2004 482.58 181.61 38%

2005 1,743.96 1,284.05 74%

2006 930.50 579.36 62%

2007 3,298.31 2,019.57 61%

2008/5 1,900.00 1,150.00 61%

Foreign participation in IPOs is about 66% on average in the last 3 years

Source: ISE

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Foreign Participation in the ISE Stock Market(as of % of free float market capitalization)

54.7%54.3%63.9%

40.9%49.2%

43.0%

52.2%

57.0%66.3%65.3%

72.4%70.20%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008/5

Source: CRA

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Regional Cooperation

New joint financial instuments may be developed Creation of regional indices, ETFs

The regional countries may further cooperate to enhance common standards in their capital markets The 2nd OIC Member States Stock Exchanges Forum

that will be held in Istanbul by the ISE on 18-19 October, 2008 may offer a valuable opportunity

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Future Prospect

Favorable oil market conditions are likely to persist in near term

Arabic countries’ capital markets have stabilized and will begin attracting new foreign investment

Turkish capital markets provide attractive prospects for the Arab countries’ individual and institutional investors.