Strategy Note /

Georgia: Politics has not spoiled economics yet

    Hasnain Malik
    Hasnain Malik

    Strategy & Head of Equity Research

    Tellimer Research
    22 January 2020
    Published byTellimer Research

    Georgia is pulled in two directions geopolitically (between the US-EU and Russia) and is split into two main camps domestically (between the Ivanshvili-led Georgia Dream and its rivals, both in Parliament and on the street in the form of organised protesters). These two stresses are interlinked – perceptions of a soft approach to Russia by the ruling Georgian Dream party is a cause for protests and is the underlying reason for US-EU support for stalled electoral reform, which likely favours the smaller opposition parties more than incumbent Georgia Dream. 

    Political stress was evident in 2019 and is likely to intensify in the run-up to November 2020 parliamentary elections. So far, Georgia’s economic progress has not been derailed by these internal and external political stresses. While this risk is likely to intensify this year, the mitigating factors are that macroeconomic policy is not the central debate between the parties, the IMF program (with its implicit orthodox policy anchors) has been extended by a year (to April 2021), and the fiscal and external vulnerabilities to economic growth have demonstrably receded in recent years.

    The most liquid listed equity exposure is Bank of Georgia: listed in London, with over US$1m of average daily traded value, not a part of MSCI FM but a popular stock among “frontier” portfolio managers. The challenge ahead is that valuation multiples are now well ahead of the historic average, which may lead to greater sensitivity to any political disruption: e.g. forward P/E and P/B are still near their 4-year peak levels, even after the 5% drop in the share price since the start of January 2020 (which started from a one-year high point).

    The November 2020 election likely makes for an even more disrupted political backdrop

    Economy has been resilient and is increasingly on a surer fiscal and external footing

    Bank of Georgia (the most liquid equity exposure available) is valued at premium multiples versus the historic average (which may lead to greater sensitivity to any political disruption)