Last week we made a brief analysis of the total market capitalization of listed companies as a % of GDP for Croatia. Consequently, for today, we decided to present you with a historic development of the market cap to GDP of the other regional markets (Slovenia, Romania, Serbia).

The historic GDP data was taken from the Word Bank’s latest available publications, while market caps were taken from the statistics published by regional stock exchanges.

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.

As visible on the graphs, all observed markets in the region recorded a high ratio in the pre-crisis year 2007. In Croatia, the market cap / GDP was as much as 109%.  Slovenia followed with a market cap to GDP OF 56.2%, while Romania observed the lowest figure of 30.3%.

However, after the financial crisis struck, one can notice that the ratio declined considerably as we were witnessing a lot of companies initiating squeeze out and delisting procedures.

Of the observed markets, Serbia has the lowest ratio of 10.7%, followed by Slovenia with 14%. On the flip side, Croatia has a market cap to GDP of roughly 38%, however the stated 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%. It seems clear that the markets still have enough room for new investments and that the current share prices have plenty of room to increase (according to this single indicator).