Weekly Market Watch by Galt & Taggart

Weekly Market Watch by Galt & Taggart

The FINANCIAL -- Economy

Real GDP up 1.3% y/y in October 2016

Georgia’s economy expanded 1.3% y/y in October 2016, after growing 1.5% y/y in previous month, according to GeoStat’s rapid estimates. As a result, output growth averaged 2.5% y/y in 10M16. Monthly rapid estimates are based on VAT turnover, fiscal and monetary statistics.

Tourist arrivals up 14.1% y/y in November 2016 

Total international arrivals to Georgia increased 5.1% y/y to 0.46mn visitors in November 2016, according to the Ministry of Internal Affairs. Arrival growth was mainly driven by surge in tourist arrivals increasing 14.1% y/y to 0.16mn persons (35.9% of total) in November 2016 after growing 20.9% y/y in previous month. Out of top countries by arrivals, in November 2016 visitors continued to increase from Armenia (+10.8% y/y), Russia (+9.9% y/y) and Ukraine (+16.0% y/y), while arrivals were down from Azerbaijan (-1.8% y/y) and Turkey (-12.1% y/y). Arrivals from EU were up 25.4% y/y. In 11M16, the number of total international arrivals was up 8.0% y/y to 5.86mn persons, while the number of tourists increased 19.3% y/y to 2.54mn persons.

Inflation rate at 0.2% y/y and 0.6% m/m in November 2016 

The annual CPI inflation was 0.2% in November 2016 after 0.2% deflation in previous month, according to GeoStat. Core inflation remained unchanged at 0.9% in November, compared to previous month. Overall price changes were driven by price increases in alcoholic beverages and tobacco (+10.5% y/y, +0.65ppts) and health (+1.5% y/y, +0.15ppts) categories. Meanwhile, prices were down in transport category (-3.7% y/y -0.41ppts). 

On a monthly basis, inflation rate was 0.6% in November 2016. Price increases in food and non-alcoholic beverages (+0.7% m/m, +0.22ppts), and transport (+1.8% m/m, +0.22ppts) were the major drivers of monthly inflation dynamics.

Tax revenues up 10.5% y/y in November 2016 

Consolidated budget tax revenues were up 10.5% y/y to GEL 715.7mn in November 2016. In 11M16, consolidated budget tax revenues stood at GEL 7.9bn (+9.6% y/y) and accounted for 89.9% of annual tax revenue plan, which was revised upward.

2017 draft state budget  sent to the parliament

On 30 November 2016, the Parliament received the revised 2017 draft state budget document for discussion. The 2017 budget framework is based on 4.0% economic growth and 4.0% GDP deflator projections and sets the fiscal deficit at 4.1% of GDP. Targeted tax revenues of consolidated budget are set at GEL 9.5bn (+9.2% y/y), accounting for 26.5% of projected GDP. The tax revenue growth partly reflects planned excise tax increases on tobacco, fuels and cars to compensate revenue shortfall from profit tax due to introduction of Estonian tax reform from January 1, 2017. Consolidated budget capital expenditures (including net lending) are set to increase 24.5% y/y to GEL 2.9bn, as government plans to enhance growth supporting infrastructure spending. Based on fiscal consolidation measures current expenditures are set to increase 3.1% y/y to GEL 9.1bn. The government plans to raise GEL 1.8bn in loans, of which GEL 400mn constitute net domestic borrowing and the rest in the form of long-term concessional borrowing from IFIs. Total public debt to GDP ratio for 2017 is projected to reach 44.2% (+0.3ppts y/y), of which external public debt is projected at 34.3% of GDP (unchanged y/y).

Fixed income

Corporate Eurobonds: Bank of Georgia Eurobond (BGEOLN) closed at 6.0% yield, trading at 99.9 (+0.1% w/w).  GOGC Eurobonds - GEOROG 05/17 traded at 100.9 (-0.5% w/w), yielding 4.8% and GEOROG 04/21 traded at 103.7 (-0.1% w/w), yielding 5.8%. Georgian Railway Eurobond (GRAIL) traded at a premium at 106.6 (-0.6% w/w), yielding 6.3%. 

Georgian Sovereign Eurobond (GEORG) closed at 108.5 (+0.3% w/w) at 4.7% yield to maturity.

Equities

BGEO Group (BGEO LN) shares closed at GBP 31.00/share (+1.64% w/w and +6.35% m/m). More than 545k shares traded in the range of GBP 29.50 – 31.05/share. Average daily traded volume was 82k in the last 4 weeks, more than in the previous month. FTSE 250 Index, of which BGEO is a constituent, lost 0.87% w/w and lost 0.04% m/m. The volume of BGEO shares traded was at 1.38% of its capitalization. 

 TBC Bank Group (TBCG LN) closed the week at GBP 14.00 (+3.78% w/w and +8.86% m/m). More than 392k shares changed hands in the range of GBP 13.00 – 14.00/share. Averaged daily traded volume was 45k in the last 4 weeks.  

Georgia Healthcare Group (GHG LN) shares closed at GBP 3.69/share (+1.10% w/w and +3.94% m/m). More than 48k shares were traded in the range of GBP 3.60 – 3.75/share.  Average daily traded volume was 11k in the last 4 weeks. The volume of GHG shares traded was at 0.04% of its capitalization.

Money Market

Refinancing loans: National Bank of Georgia (NBG) issued 7-day refinancing loans of GEL 1,270mn (US$ 500.9mn).

Certificates of deposit: NBG sold 91-day, GEL 20mn (US$ 7.9mn) certificates of deposit, with an average yield of 6.83% (up by 21bps from previous issue).

Ministry of Finance Treasury Notes: 10-year GEL 7.5mn (US$ 3.0mn) T-Notes of Ministry of Finance were sold at the auction held at NBG on November 22, 2016. The weighted average yield was fixed at 10.750%. The nearest treasury securities auction is scheduled for December 7, 2016, where GEL 30mn nominal value 2-year T-Notes will be sold.