The Republic of Georgia's "Russian Law" generally refers to legislation that pertains to the regulation and influence of foreign entities within the country, specifically those related to Russia.
The most notable instance of such legislation is the proposed "foreign agents" law, which was introduced in the Georgian Parliament in early 2023.
Georgia's proposed "foreign agents" law, modelled similarly to Russian legislation, sparked significant controversy and protests, reflecting deep concerns about civil liberties and political freedom. Such laws, if enacted, can have wide-ranging economic impacts, influencing investor confidence, currency stability, and stock market performance.
Since May 1st, Georgia’s TBC bank share price and bank of Georgia group shares have declined by -27% and -32% respectively. Year-to-date, the GEL Georgian lari has lost -6.22% against the world’s reserve currency the U.S. dollar.
The volume of foreign direct investment (FDI) in Georgia during the first quarter of 2024 was $201mn, a 64% decrease compared to the first quarter of 2023, according to preliminary data from the National Statistical Service.
Geostat attributes this decline to reductions in all three components of FDI: share capital, reinvestment and debt obligations. Specifically, in the first quarter of 2024, share capital amounted to $76mn, making up 38% of total FDI. Reinvestment was $93mn, accounting for 46% of the total.
Georgia's foreign reserves were $4.600b in May, according to the National Bank of Georgia. First reserve decline in 3 months, to lowest since Oct. 2022
In the global FX market, the GEL is trading at 2.86 levels against the USD and at 3.08 against the euro, European Union common currency.
The impact of Georgia's legislation concerning the so-called Russian law on the Georgian lari (GEL) and Georgian stocks has been significant, given the interconnectedness of political decisions, investor confidence, and economic stability.
The external value of a country’s currency is a barometer of the global financial market’s assessment of the country and its risks & opportunities.
Immediate Effects:
Volatility: Legislation that affects relations with Russia can cause immediate volatility in the GEL. Political uncertainty often leads to fluctuations as investors reassess the stability and economic prospects of the country.
Depreciation: If the legislation is perceived as detrimental to the economic relationship between Georgia and international markets, the GEL might depreciate. Any disruptions could affect export revenues and foreign exchange inflows.
Long-term Effects:
Economic Confidence: If the law leads to sustained political or economic tensions, it might reduce investor confidence in the Georgian economy. This can lead to reduced foreign direct investment and remittances, both of which are important for the Georgian economy.
Inflation: A depreciating lari can lead to higher import prices, contributing to inflation. This can reduce purchasing power and potentially slow economic growth.
Georgian Stocks
Immediate Effects:
Market Reaction: The stock market often reacts quickly to political developments. Negative perceptions of the new law could lead to an immediate sell-off, reducing stock prices as investors move to mitigate risk.
London listed bank stocks like TBC bank BGEO Bank of Georgia group are the bellwether stocks of the republic of Georgia listed in one of the most liquid financials markets of the world, the city of London.
In terms of valuation and according to Bloomberg data, TBC is valued at 4.1x P/E with a current indicative dividend yield of 8.21%%. the current analyst community consensus view on the stock and company is still buy with a 12-month TP target price of GBP 41.30 implying potential gain of +63.6% from current levels. Bloomberg consensus ratings currently stand at Buys 100% holds 0% and Sell 0%.
BGEO Bank of Georgia group is currently valued at around 3.6x P/E with a current indicative dividend yield of 6.27%. the current analyst community consensus view on the stock and company is still buy with a 12-month TP target price of GBP 55.55 implying potential gain of +51% from current levels. Bloomberg consensus ratings currently stand at Buys 100% holds 0% and sell 0%.
The country of Georgia offers investment opportunities due to its strategic location, economic reforms, and efforts to attract foreign investment. Potential investors should conduct thorough due diligence, consider diversifying their investments, and stay informed about the political and economic landscape to mitigate these risks.
Georgia's proposed "foreign agents" law, modelled similarly to Russian legislation, sparked significant controversy and protests, reflecting deep concerns about civil liberties and political freedom. Such laws, if enacted, can have wide-ranging economic impacts, influencing investor confidence, currency stability, and stock market performance. The withdrawal of the bill helped to avert immediate economic fallout, but the situation underscored the sensitive interplay between politics and economics in Georgia.
Rainer Michael Preiss, Partner & Portfolio Strategist at Das Family Office in Singapore
