Originally appeared on Bosphorus Consulting on 09 February 2015
It is surprising that Turkey ranks 27th in the world for market capitalization (Index Mundi “Market capitalization of listed companies”), yet is the world’s 18th largest economy (World Bank “GDP Ranking”) as measured by GDP. The discrepancy between Turkey’s GDP ranking and its market capitalization ranking points to a missed opportunity on the part of Turkish companies to effectively exploit their potential to attract investment. Why are so many Turkish companies failing to translate productivity into capitalization?
(Note: Germany is an exception in the data; the relative importance of intermediation in Germany means that German stock markets and shares are less relevant than in the other countries in our sample (Horst Siebert “The German Economy: Beyond the Social Market”, 2005 (pg 215))).
Warren Buffet maintains that a company is seen as overvalued when its market cap-to-GDP ratio exceeds 100% (Forbes “Buffet Wary If Ratio Market Value of Stocks Greater Than 100% of GDP”, 22 February, 2014). Conversely, there is a relationship between the economic output of a country and the ability of its companies to attract investment. Turkey is a top-20 world economy, but when it comes to market capitalization it ranks alongside Russia, Mexico, and Italy (Germany, as explained, is an outlier and cannot be compared to Turkey in this analysis).
In order for Turkey to move toward its objective of becoming a top-10 world economy by 2023, it will have to leap frog over a lot of other strong economies. Turkey should continue to offer growth opportunities, but many international investors are bothered by opaque corporate governance structures, insufficient efforts to appeal to international best practices, and absence of effective communications.
Our own research points (See: pg 11, Key Finding 5 of our 2014 survey) to a persistent lack of effective communications from Turkish companies, and this breakdown in communicating with international stakeholders is translating into weak market capitalizations. Given the dynamics of Turkey and the region, international investors are consistently demanding more, and better, communication. Why Turkish businesses are not responding adequately remains a mystery to us all. But the numbers paint a very clear picture.