OPPORTUNITIES IN TURKISH CAPITAL MARKETS Hüseyin ERKAN Chairman & CEO Istanbul Stock Exchange (ISE) The 3 rd Turkish-Arab Economic Forum June 12-13, 2008, Istanbul

2 Turkey: Gateway to Europe, Asia and the Middle East  Turkish economy has a growing potential in different sectors Property projects Telecommunication & Technology Infrastructure Projects (utilities, ports, highways)  Turkey stands to be a corridor in the middle of the GCC countries, Europe and Asia  Net FDI to Turkey in is US$ 20 billion in each year (1/3 of the net FDI comes through the ISE)  The Turkish capital markets are highly liquid and appeal to foreign investors (high level of investor confidence)  Enhanced market infrastructure Legal framework in harmony with the international standards Technological infrastructure is strong and competitive

3 Improving Macroeconomic Indicators  A stable political and economic outlook  Appropriate business environment for both FDI and portfolio investments  Successful privatization programs  Harmonization with the EU countries  Efficient banking and capital market system

4 Investment Opportunities in Turkey Investors' Preference What Turkey Offers A well-developed banking sector 46 local commercial and investment banks 4 participation banks Free movement of funds Investment-friendly policies 100 % foreign ownership allowed Tax treaties with 86 countries Booming property market Profitable investment opportunities Development of the energy industry for the region Growing need for infrastructure development Project financing for fast growing companies World's 5th largest bond market A wide-range of capital market investment ETF market is growing instruments New regulations for structured warrants and asset backed securities are on the way

5 ISE’s Experience  Coordinator of the “OIC Member States Stock Exchanges Forum’’  President of the “Federation of Euro-Asian Stock Exchanges” (FEAS)

6 ISE’s Experience Relations with the OIC Member Countries 57 Member States 31 Stock Exchanges 8 Observers

7 OIC Member States Stock Exchanges Forum  OIC Member States Stock Exchanges Forum (the first meeting was held on March 2005 in Istanbul) Aim: To promote cooperation among the stock exchanges of the OIC Member States.  Out of 57 OIC Member States, only 38 of them have functioning stock exchanges. 16 out of 38 countries are the members of FEAS.  Working Committees (Technical & IT Committee)

8 OIC Member States Stock Exchanges Forum (Proposals)  The definition and certification of the securities  Creation of regional market indices  Cooperation among regulatory bodies and other capital market institutions (i.e. clearing, custody institutions)  Cooperation with the existing federations  Organizing joint training and staff exchange programs

9 Working Committees  Technical Committee (consists of 11 members) Creating Common Indices Promoting the creation of Islamic Depository Receipts (IDR) Cross-listing and Cross-membership Opportunities Exchanging Staff and Organizing Training Programs Defining Areas of Cooperation (i.e. Common trading platform) Questionnaire – Surveys for the assessment of the stock exchanges  IT Committee (consists of 8 members) Assessment of technological levels of the participating stock exchanges Establishment of a Data Center

10  ALBANIA  AZERBAIJAN (2)  ARMENIA  BAHRAIN  BELARUS  BOSNIA HERZEGOVINA (2) BULGARIA CROATIA EGYPT GEORGIA IRAN IRAQ JORDAN KAZAKHSTAN KYRGYZ REPUBLIC MACEDONIA MOLDOVA MONGOLIA OMAN PAKISTAN (2) PALESTINE ROMANIA SERBIA MONTENEGRO TURKMENISTAN TURKEY UKRAINE UNITED ARAB EMIRATES UZBEKISTAN MEMBER EXCHANGES 29 Countries 32 Member Exchanges 8 Affiliate Members FEAS - FEDERATION OF EURO-ASIAN STOCK EXCHANGES

11 How FEAS Serves to the Needs of Member Stock Exchanges ?  Promotes mechanisms for reliable, transparent and continuous trading and settlement  Creates greater awareness and visibility for the regions stocks and investment opportunities  Helps to promote the listing of home market investment grade companies in the regional market and encourages them to get involved in regional indexes (i.e. Dow Jones)  Provides network and updated information to the new members at the region, with meetings, web applications & publications (with the joint work of FEAS, ISE and OECD)  “Best Practices for the Development of Stock Exchanges in Transition Economises”  “SME Financing: Alternative Sources of Finance”

12 How FEAS Serves to the Needs of Member Stock Exchanges ?  Helps create linkages among:  The regions’ intermediaries  The regions’ data providers  The regions’ settlement and custody institutions  Creates a centeralized training hub for FEAS members in order to encourage research and regulatory implementation via bilateral exchange program  Promote Corporate Governance

13 FEAS Region Statistics

14 Istanbul: A City with an International Financial Center Potential Financial centers Potential candidates

15 ISE’s Market Performance

16 Istanbul attracts and appeal to Major International Financial Institutions

17 Market Capitalization (Billion USD) Source: WFE, S&P

18 Market Traded Value (Billion USD) Source: WFE, S&P

19 Number of Listed Companies Source: WFE, S&P

20 Arab Countries’ Stock Market Capitalization ( , Billion USD) Source: Standard & Poors

21 Market Capitalization (Million USD) Arabic Countries Average vs. Turkey Source: S & P 76,4%

22 Market Traded Value (Million USD) Arabic Countries Average vs. Turkey Source: S & P 33%

23 Comparison of Bonds & Bills Markets Traded Value (2007, billion USD) Source: WFE

24 Index Returns (2007/12, USD based) Source: WFE

25 ISE National 100 Index (USD based) Source: ISE 7,6 times increase

26 Comparison of ISE-100 with MSCI Indices (2005/6=100 USD based) Source: Bloomberg, Morgan Stanley

27 P/E Ratios Source: Bloomberg

28 Foreign Participation in the IPOs Total Revenue (Million USD) Foreign Participation (Million USD) Foreign Participation (%) % % , , % % % % % , , % % , , % 2008/5 1, , % Foreign participation in IPOs is about 66% on average in the last 3 years Source: ISE

29 Foreign Participation in the ISE Stock Market (as of % of free float market capitalization) Source: CRA

30 Regional Cooperation  New joint financial instuments may be developed Creation of regional indices, ETFs  The regional countries may further cooperate to enhance common standards in their capital markets The 2 nd OIC Member States Stock Exchanges Forum that will be held in Istanbul by the ISE on October, 2008 may offer a valuable opportunity

31 Future Prospect  Favorable oil market conditions are likely to persist in near term  Arabic countries’ capital markets have stabilized and will begin attracting new foreign investment  Turkish capital markets provide attractive prospects for the Arab countries’ individual and institutional investors.