The boycott of Parliament by the largest opposition party, the United National Movement, and protests should be coming to an end under the terms of a deal, brokered by the EU on 20 April, with the ruling Georgia Dream party. However, this truce is likely to be a fragile one because some members of the opposition wanted an immediate re-run of last October's election, and the underlying tensions with the government remain: growing authoritarianism, proximity to Russia, and close to 15% unemployment.
While the diffusion of protests should allow, Covid-19 permitting, for a recovery in tourism, which directly drives almost 10% of GDP. But the next flashpoint in politics is coming in October: a condition of the truce is that if the ruling party wins less than 43% of the vote in local elections then a general election will be called. Is the opposition likely to trust the results of that election anymore than last October's one?
There is a curious schizophrenia currently on display in capital markets. On the one hand, Georgia's first Eurobond for a decade was successfully issued on 15th April: the 5-year US$500mn was 4x over-subscribed and priced at a yield of 2.875%. On the other hand, the bellwether equity, Bank of Georgia, is down close to 10% year-to-date. It is valued on merely 0.8x forward PB (for 19% ROE) and forward PE of 4.8x.
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