HOW CAN WE INCREASE THE ATTRACTIVENESS OF THE REGION AS AN AREA FOR INVESTMENT?

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HOW CAN WE INCREASE THE ATTRACTIVENESS OF THE
REGION AS AN AREA FOR INVESTMENT?

• Hüseyin ERKAN
• Chairman CEO
• Istanbul Stock Exchange (ISE)

Conference on the Prospects for Capital Markets
in Southeast Europe Sofia, 16 September 2008
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Key Trends in Global Markets

• High volatility in the financial markets
• More strict regulatory standards
• Increasing role of governments (liquidity
  injection)
• Closer coordination among international
  institutions
• International risk surveillance
• More accurate and timely disclosure (Financial
  Stability Forum - 100 day plan of G-7 Countries)
• Sovereign Wealth Funds (Gulf Far East Countries)

3
Trends in Stock Exchanges Industry
Demutualization

• OM Group
• Euronext

Mergers and Acquisitions
NASDAQ- OM NYSE-Euronext
Consolidation
Exchanges vs Dark Liquidity Pools
Fragmentation

• MiFID ECN

4
Emerging Markets vs Developed Markets
Market Capitalization
Traded Value
Emerging markets
Source WFE
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Strong Potential for Growthin Emerging Markets

• Until now, emerging market exchanges enjoyed
  rapid growth based on the expansion of cash
  equities market
• Increasingly, emerging markets exchanges are
  exploring revenue diversification opportunities
  as the market structure becomes more mature and
  competition amongst exchanges intensifies

Source Credit Suisse
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Improving Alliances

• ISE and ASE are about to launch a common index
• ETFs on this index will be traded in both
  exchanges
• Creating fair, efficient and transparent market
  environment with little or no barriers to trade
  between the exchanges operating in the same
  region
• Organizing joint training and staff exchange
  program

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ISEs International Standing

• President of the Federation of Euro-Asian Stock
  Exchanges (FEAS)
• Coordinator of the OIC Member States Stock
  Exchanges Forum
• Participation to Regional Exchanges
• Baku Stock Exchange (5.5)
• Kyrgyz Stock Exchange (24.52)

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FEAS - FEDERATION OF EURO-ASIAN STOCK EXCHANGES
29 Countries32 Member Exchanges 8 Affiliate
Members

• TURKMENISTAN
• TURKEY
• UKRAINE
• UNITED ARAB EMIRATES
• UZBEKISTAN

• BULGARIA
• CROATIA
• EGYPT
• GEORGIA
• IRAN
• IRAQ

MEMBER EXCHANGES

• OMAN
• PAKISTAN (2)
• PALESTINE
• ROMANIA
• SERBIA
• MONTENEGRO

• ALBANIA
• AZERBAIJAN (2)
• ARMENIA
• BAHRAIN
• BELARUS
• BOSNIAHERZEGOVINA (2)

• JORDAN
• KAZAKHSTAN
• KYRGYZ REPUBLIC
• MACEDONIA
• MOLDOVA
• MONGOLIA

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FEAS Region Statistics
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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
  markets and encourages them to be included in
  regional indexes (i.e. Dow Jones)
• Provides network and updated information to the
  new members in the region, with meetings, web
  applications publications (with the joint work
  of FEAS, ISE, WFE and OECD)
• Best Practices for the Development of Stock
  Exchanges in Transition Economises
• Alternative Sources of Finance for SMEs

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How FEAS Serves to the Needs of Member Stock
Exchanges ?

• Create linkages among
• The regions intermediaries
• The regions data providers
• The regions settlement and custody institutions
• Create 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 Task Forces

• MEDIA (Awareness, Information and Marketing)
• REGIONAL INDICES (Dow Jones Indexes)
• CORPORATE GOVERNANCE (Common Principles)
• AFFILIATE MEMBERS (Regional CSD Membership)
• FEAS DATA CENTER
• XBRL (Extensible Business Reporting Language)
• RESEARCH DEVELOPMENT

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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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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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132 Members (Total) 91 Brokerage Houses 12 Inv.
Develop. Banks 29 Commercial Banks
132 Members (Total) 91 Brokerage Houses 12 Inv.
Develop. Banks 29 Commercial Banks
Clearing settlement T3,....,T15
Clearing settlement T,... ,T90
Stock Market Price Margins ? 10 per session
104 Members (Total) 104 Brokerage Houses
Clearing settlement T2
ISE Settlement Custody Bank (Takasbank) Central
Registry Agency
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ISEs Market Performance
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ISE Markets Total Trading Volume(Billion USD)

• 6 times
• Turkeys GDP

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ISE Stock Market Trading Volume (Million USD)

• 425 million
• stocks
• per day

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Scale of ISE Companies(as of August 29, 2008)
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Stock Market Capitalization By Sector (as of
August 29, 2008)
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Market Capitalization 2008/7 (Billion USD)
Source WFE
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Market Traded Value 2008/7 (Billion USD)
Source WFE
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Number of Listed Companies 2008/7
Source WFE
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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
2008/7 1,900.00 1,150.00 61
Source ISE
Foreign participation in IPOs is about 66 on
average in the last 3 years
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Foreign Participation in the ISE Stock Market(as
of of free float market capitalization)
Source CRA
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Istanbul attracts and appeal to Major
International Financial Institutions

• Citigroup
• Deutsche Group
• Merrill Lynch
• Morgan Stanley
• Lehman Brothers
• Credit Suisse
• UBS
• EFG Eurobank
• Credit Agricole Cheuvreux
• Unicorn Investment Bank

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Comparison of ISE-100 with MSCI Indices
(2005/8100 USD based)
Source Bloomberg, Morgan Stanley
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ISE National 100 Index vs. ISE Corporate
Governance Index
The firms having a CG rating at the ISE-100 index
has a total weight of 11.74 in the ISE-100
index
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P/E Ratios
Source Bloomberg
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Future Outlook

• Road map for co-operation and common projects
• Cooperation among SEE countries stock exchanges
  should be supported by both the governments and
  the regulatory bodies
• Regional transformation should be carried out
  with an international perspective on legal,
  fiscal, social and regulatory framework as well
  as in compliance with MIFID