For today we decided to present you with the historic development of Croatia’s and Slovenia’s Market Cap to GDP together with the 2020 estimates.
We made a brief analysis of the total market capitalization of listed companies as a % of GDP for Croatia & Slovenia. The historic GDP data was taken from the Word Bank s latest available publications. Market caps were taken from the statistics published by regional stock exchanges.
The market cap to GDP ratio, or the Buffet Indicator as it is sometimes referred to, due to the fact that it was popularized by the famous investor Warren Buffet, compares the market capitalization of all publicly-traded stocks on a single market with the country’s GDP. It was one of the indicators of the approaching storm and later the crises in 2008, which severely damaged the equity markets. As Buffett said, “The ratio has certain limitations in telling you what you need to know. Still, it is probably the best single measure of where valuations stand at any given moment”. Therefore, the metric is often used to determine whether the stock is over or undervalued.
Croatia (Market Cap / GDP) (%)
We can see that Croatia witnessed a high ratio in the pre-crisis year 2007, as much as 109%. However, after the financial crisis struck, one can notice that the ratio declined substantially as we were witnessing a lot of companies initiating squeeze out and delisting procedures.
The Covid-19 crisis has already had a very negative impact on the market cap of both equity markets and will definitely have a negative impact on the GPDs of respective countries. There are still many uncertainties which make estimating 2020 GDP quite challenging for Croatia and Slovenia, such as the duration of the crisis, will there be a second wave of the virus, how will the consumer confidence look like in the following months etc. Note that for this analysis we used IMF’s estimates of a GDP drop of 8% and 9% for Slovenia and Croatia, respectively.
Since the beginning of the year (until end of April), the market cap of the ZSE has decreased by 13.6% or HRK 17.7bn to HRK 130.2bn. Such a result as a share of 2020 estimated GDP puts the ratio at 34.4%, representing a YTD decrease of 3.61 p.p. It is also worth noting that this would be the lowest market cap/GDP in the observed period, quite lower than the median of 38.6%. The mentioned ratio would be even lower if we accounted for the fact that a few largest companies listed on ZSE have a low single digit free float. Therefore, the market cap to GDP adjusted for free float would amount to roughly 16%.
Since the beginning of the year (until end of April) the market cap on the LJSE has decreased by 16.8% or EUR 1.24bn to EUR 6.13bn. Therefore, such a result would put market cap to estimated GDP at 13.9%, close to the median of the observed period which amounts to 14%.
Slovenia (Market Cap / GDP) (%)
