For today we decided to present you with the historic development of Croatia’s Market Cap to GDP as the metric is often used to determine whether stocks are over or undervalued.

We made a brief analysis of the total market capitalization of listed companies as a % of GDP for Croatia. The historic GDP data was taken from the Word Bank s latest available publications. Market caps were taken from the statistics published the stock exchange.

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.

We can see that aCroatia recorded 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. With the ratio currently standing at roughly 38%, it is clear that the market still has enough room for fresh investments and that the current share prices have plenty of room to increase (according to this single indicator). 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 19%.

Croatia’s Market Cap to GDP (2007 – 2019) (%)