Iceland’s Economy and the Stock Market Thordur Fridjonsson, President OMX Nordic Exchange in Iceland DenNorskeAktuarforening 15 March 2007

Topics The Economy Remarkable performance Transformation of the economy, local to global Strengths and weaknesses What is ahead for the economy? Iceland Stock Exchange Track record – hard to beat The Nordic Exchange Exceptional growth and impressive transformation Acquisitions abroad OMX –The Nordic Exchange One Nordic marketT Towards the future – great opportunities The message

The economy – fast and lean

Economic Growth – average annual GDP growth Source: OECD

and Financial Development The Phases of Economic and Financial Development Final phase of privatization of state owned banks From budget deficit to surplus The final phase of liberalizing capital flows Wave of acquisitions abroad Setting the Funda-mentals Inflation targeting- Independent Central Bank Incorporation of state- owned banks and privatization EEA established Containing inflation

Strengths and Weaknesses Fast growing Efficient infrastructure Rich energy resources Solid fiscal position Strong pension funds Motivated people Weaknesses Cyclicality Challenging inflation management over the business cycle Relatively high foreign debt

Iceland is doing well in International Comparisons Ranking Standard of living 2 Competitiveness 4 Creativity 7 Low corruption 1 Economic freedom 5 Sources: United Nations Human Development Index, Human Development Report 2005 The IMD World Competitiveness Yearbook 2005, IMD Switzerland 2005 The Flight of the Creative Class: The Global Creativity Index, Professor Richard Florida 2005 Transparency International: The International Corruption Perception Index 2005 The Heritage Foundation / Wall Street Journal: Index of Economic Freedom

What is Ahead for the Economy? “The medium term outlook for the Icelandic economy remains enviable” IMF May 15 2006. Typical business cycle with a slow-down in growth over the next two years. Beyond, Iceland will be poised for a new cycle of expansion. Average growth in Iceland over the next decade should not be any slower than during the past decade. Those are acceptable prospects.

Track record - hard to beat Towards the future with OMX

Changing face of the Icelandic market - Developments 2001-2006 Market cap increased 6 times from 55% of GDP to 230% of GDP Turnover increased 15 times Stock market prices are up 4.5 times Number of listed companies declined from 75 to 25, but the average market value has multiplied 18 times Most of the listed companies are strong international companies

Exceptional Growth Source: OMX Nordic Exchange in Iceland

Top Performer Price performance has been extraordinary This, of course, raises the q is the market overvalued Iceland Stock Exchange does not make an evaluation, but when we suspect that a bubble is forming the first check is the p/e ratio

New Capital - % of end-of-year market cap Source: OMX Nordic Exchange in Iceland and FESE

Acquisitions abroad by listed companies on OMX Nordic Exchange in Iceland Source: Ministry of Finance (estimate) and OMX Nordic Exchange in Iceland

Icelandic Expansion by Countries in 2006

Foreign Direct Investment - Stocks % of GDP Source: UN World Investment Report 2006

Revenues Generated Abroad (ICEX-15) Source: OMX Nordic Exchange in Iceland

From local to global

The Nordic Exchange Oslo Helsinki Iceland Copenhagen Stockholm Tallinn London Copenhagen Riga New York Vilnius Market value 920 EUR billion Turnover/business day 4,2 EUR billion Trades/business day 124 500 712 listed companies (excl. 12 multiple listings) 160 trading members (excl. 137 cross membership)

One Nordic market COPENHAGEN Main STOCKHOLM Market HELSINKI First Exchange list First North Main Market STOCKHOLM A list O list Nya Marknaden HELSINKI Main list I list NM list First North Iceland Main List isec

…the leadership in important sectors No 1 in Europe in IT No 1 in the world in Paper Products No 2 in the world in Fashion No 3 in the world in Machinery No 2 largest Technology exchange in Europe No 1 in Europe in technology hardware Most liquid IT and Telecom exchange in Europe

Towards the Future with OMX Continued rapid growth based on Fast growing economy Further global integration Greater potential with OMX Benefits from the combination with OMX Increased visibility Easier access for investors More rapid development of new products and services The guiding light for the future How can we best serve the market?

The Message The economy is fast growing and fundamentally sound A period of temporary adjustments is ahead in wake of exceptional growth A transformation from a relatively local economy to a globally integrated economy The market is well functioning with promising prospects