The İstanbul Stock Exchange (İMKB) is “more sophisticated” than its regional competitors in the Middle East, North Africa and Eastern Europe according to Dow Jones Indexes' Senior Director of International Markets and Products Deborah Ciervo.
Ciervo, speaking with Today's Zaman, praised the depth of knowledge and expertise in terms of trade execution, which provides the İMKB with liquidity and a market that "continuosly moves,” while other regional exchanges have seen their liquidity and trading volume slow down over the past three years. Ciervo added that one of İstanbul's competitor, Moscow, is not as accessible to foreign investors as the İMKB due to a less open and favorable legal and regulatory framework. (source)
The İMKB has embarked on a campaign to educate Turkish company directors of the benefits of listing, with seminars held since 2010 in cities across the country. Dow Jones Indexes' Director of Islamic Market Indexes Tariq Al-Rifai spoke of the İMKB's successful efforts to encourage Turkish companies to list on the exchange. This program, in conjunction with the Capital Markets Board (SPK), the Turkish Union of Chambers and Commodity Exchanges (TOBB) and the Association of Capital Market Intermediary Institutions of Turkey (TSPAKB), led to 25 initial public offerings (IPOs) in 2010, and 18 IPOs in first half of 2011.
Turkey's culture of stock market participation is more deeply ingrained and developed than in the country's neighbors as demonstrated by the İMKB's integral role in the Federation of Euro-Asian Stock Exchanges (FEAS). FEAS is bringing together equity markets from the United Arab Emirates (UAE), Egypt, Bahrain, Kazakhstan, Croatia, Pakistan and Palestine, among others. Ciervo said “FEAS is based in the İMKB, as their largest member, and is motivated toward FEAS' goal of facilitating more liquid, transparent markets in the region, which will take time.” In November Dow Jones Indexes launched the FEAS Titans 50 Equal Weighted Index, measuring the performance of 50 of the largest stocks traded on FEAS members' exchanges, dominated by İMKB stocks, which make up just over 50 per cent of the exchange.
The government, regulators and the İMKB are engaged in “motivated dialogue,” working together effectively to increase the İMKB's attractiveness to foreign investors, according to Al-Rifai. Yet he said there are “big challenges” ahead in terms of drawing capital away from Middle Eastern financial centers such as Dubai, and the more ambitious goal of making İstanbul an international financial center. However, Al-Rifai spoke of İstanbul's increasing attractiveness to foreign investors over the last decade. In particular “Middle Eastern and Malaysian investors are very comfortable investing [in İstanbul],” he said.
The İMKB and regulators have a role to play in boosting İstanbul's financial market by encouraging further growth in Islamic finance and Shariah compliant financial products, an industry that totaled $1.14 trillion worldwide in 2011, with annual growth of around 10 per cent. One such boost would be a change in the capital gains tax law that disadvantages exchange traded funds (ETFs), through which investors can get exposure to funds that follow indexes such as Dow Jones Islamic Market Turkey Index, according to Ciervo and Al-Rifai. Capital gains on ETFs are currently taxed at 10 percent while profits on equities and other financial products are untaxed, discouraging potential ETF investors. Both said they were optimistic of reform to this soon which would result in an increase in the number of ETFs traded on the İMKB. Al-Rifai also envisaged the potential for growth in the country's Islamic banking industry, with Islamic banks -- known as “participation banks” in Turkey -- accounting for under 5 percent of Turkey's $559 billion banking industry.
