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GEL & Georgian assets

Rainer Michael Preiss
12.05.23 16:03
GEL (Georgia Lari) is the 10th best performing currency globally year-to-date, according to Bloomberg data. While the Georgian lari might not be a widely held currency in global investment and savings portfolios, the lari and Georgian assets are attractive from a global perspective.

The strong performance of the Georgian economy is attributed to a surge in tourism, transit trade, and financial inflows, along with prudent macroeconomic policies. Despite uncertainties, especially in the external environment, Georgia economic policies are focused on rebuilding fiscal and foreign exchange buffers while maintaining reforms to bolster stability and inclusive growth.

Georgia’s re-financing rate which is the benchmark interest rate in Georgia currently stands at 10.5%, while the Georgian Lari is the 10th best performing currency in the world.

National Bank of Georgia current policy guidance and direction is “easing” of monetary policy.

The IMF has commended the National Bank of Georgia's commitment to the inflation-targeting framework and prudent international reserve management.

While banking sector stocks in the US and Europe have underperformed due to higher rates and western bank central bank monetary tightening, Georgian banks listed in London like TBC group and Bank of Georgia shares have out performed during a time when the GEL Georgian lari currency is among the best performing currencies year-to-date against both the US dollar and the euro.

The Lari and Georgian banks listed in London & smaller markets tend to be driven by more country-specific sets of risks and potential rewards than the bigger countries, where investments are more sensitive to broad changes in global risk sentiment.

The Georgian currency has come a long way since Georgia replaced the Russian ruble on April 5, 1993, and when the country suffered from hyperinflation. In 1995 the Georgian Lari became the official currency of The Republic of Georgia.

This year the Georgian lari, up more than 20%. In the same period, 20 out of 23 major emerging-market currencies, have lost value against the dollar.

Financial markets and currency markets discount the future. In the case of the Lari seems to increasingly focus on Georgia joining the EU as a high real interest rates country in a low-yielding world. A Post pandemic world at risk of inflation.

As a country with a banking sector NIM (net interest margin) of 6.85, Georgia ranks 40h highest net interest margin country in the world, supporting the currency.

A very important thing about Georgia is the stability of its banking system. This factor plays a key role in attracting foreign investors and making them deposit their money in Georgian banks. the Georgian Lari is the bright spot in the global FX market.

From a MACRO point of view its Georgia joining the EU and the central bank of Georgia National bank of Georgia running responsible monetary policy that underpins the investment case for Georgia and Georgia GEL (Georgia Lari) assets like London listed TBC bank Group and or Bank of Georgia.
When there is a large volume of inflows into the country from tourism, exports, etc., it helps to strengthen the exchange rate.

After double-digit expansion for two consecutive years, the Georgian economy maintained its strong growth momentum with real [gross domestic product] increasing by 7.2% in Q1 2023. This growth was driven by strong inflows across the board, from net exports to tourism and remittances

Georgia's long-term foreign currency debt rating was recently affirmed by Fitch at BB, two levels below investment grade. S&P rating also affirmed Georgia ratings with outlook stable.

Rainer Michael Preiss is Partner & Portfolio Strategist at Das Family Office in Singapore.