As of end 2020, market cap to GDP for Croatia stood at 39%, while for Slovenia it stood at 15.1%.
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 Croatian bureau of statistics and Statistical Office of the Republic of Slovenia 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, since 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.
Highest ratio can be seen in 2007 right before the housing crisis. 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. Since than, market cap to GDP never reached such high levels both in Croatia and in Slovenia. With the recent GDP announcement, it is worth revisiting Buffet’s indicator to see how the pandemic changed the ratio in both Croatia and Slovenia.
Croatia’s Market Cap / GDP
By the end 2020, the equity market cap of ZSE dropped by 7.2%, to HRK 137.4bn. Meanwhile, 2020 also brought about the deepest economic contraction in Croatia since 2009, with GDP decreasing by 8.4% YoY. As a result, as of end 2020 market cap to GDP slightly increased to 38.98%. However, if we were to look at free float market cap to GDP we would observe a relatively low ratio of 15.7%.
Slovenia was relatively less affected by the pandemic Covid-19 with the economy contracting by 5.5% in 2020. Meanwhile, Slovenian blue chips showed strong resilience to the pandemic with the equity market cap of LJSE decreasing by only 2.1%. Consequently, market cap to GDP as of end 2020 stood at a very low 15.1%.
Although one should never look at a single parameter when determining whether a market is under or overvalued, it seems that the according to Buffet’s indicator both countries might have plenty of room for growth in equities.
Slovenia’s Market Cap / GDP