Interview: Ibrahim Turhan
Given recent macroeconomic volatility, why should international investors remain confident in the growth prospects of the Turkish equities market?
IBRAHIM TURHAN: In 2014 Turkey was rated as the 14th most attractive foreign direct investment (FDI) destination in the world. Assessing the conditions in any market by looking at just short-term movements will lead to wrong conclusions. Emerging markets are affected by the monetary policy of international central banks and experience some volatility, but it is temporary.
Turkey’s economic fundamentals are strong. The economy has grown by an average of 5% since 2003. Fiscal discipline is maintained, as shown by the EU-defined government debt stock-to-GDP ratio, which is 36%. Turkey has received two upgrades to its investment grade, the latter of which came in May 2013 just before the US Federal Reserve’s announcement which caused the volatility in emerging markets. Since then, nothing has changed that will affect economic fundamentals in Turkey. The recent drops in oil prices actually work in Turkey’s favour and improve the outlook on the inflation and external balance fronts.
The attractiveness of Turkey as an investment destination is also reflected in FDI statistics. While FDI amounted to only $9.6bn between 1995 and 2002, it totalled around $146bn between 2003 and 2014. Moreover, the number of companies with international capital in Turkey rose to 43,700 by September 2014.
To what do you attribute the recent fall in the number of initial public offerings (IPOs)?
TURHAN: There are 422 companies currently listed, and 109 IPOs were realised between 2008 and 2014, yet the market capitalisation-to-GDP ratio reached only 32% at the end of 2013. As one of the most liquid stock exchanges in the world, we have the potential to support a higher market capitalisation. Borsa Istanbul has stepped up its efforts through organised events, on-site visits and media campaigns, and a new project, “Listing Istanbul”, has been initiated to attract foreign companies to list on our platforms. Increasing the market capitalisation-to-GDP ratio to 70-80% is also one of our major targets. The recent slowdown in IPO activity is mainly due to the increased volatility of the last two years in emerging markets, including Turkey. It should also be noted that companies do not just access funding through IPOs at Borsa Istanbul. In the last four years corporate issues also have been used actively by Turkish firms. The amount of issuances rose to $30.3bn in 2014, from almost nothing in 2010. As a result, the overall public offering is on the rise.
Has the flare-up in regional instability affected confidence? Where are corporates looking to expand?
TURHAN: Thanks to its young population and strong domestic demand, companies continue to expand their operations through mergers and acquisitions in Turkey, especially in energy, finance and the service industry. In terms of number of transactions, IT, energy and manufacturing were the top three industries in 2014, while in terms of value of transactions, energy, transport and financial services were the top three segments.
How can private equity increase its portfolio of small and medium-sized enterprises (SMEs)?
TURHAN: SMEs account for 95% of all enterprises in emerging markets, employing 60% of the workforce. Companies in this category have limited access to funds in organised markets, as they do not have the necessary resources and capacity to go public or realise corporate issuances. Private equity can play a critical role in facilitating investment into those companies while benefitting from the opportunities offered by them. Private equity should use better channels to connect with SMEs. For example, Borsa Istanbul started Private Market, where private equity firms, angel investors or other qualified investors can meet start-up companies. The creation of such platforms is crucial, as both parties can develop a more sound relationship based on trust thanks to the organised nature of these markets.
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