Weekly Market Watch by Galt&Taggart

Trade deficit up % y/y excluding one-offs in May 2016

In May 2016, imports decreased 13.9% y/y to US$ 608.6mn, exports decreased 11.6% y/y to US$ 172.3mn, and the trade deficit decreased 14.8% y/y to US$ 436.3mn, according to GeoStat’s preliminary figures. Excluding one-offs (donated C-hepatitis medication) from May 2015 import figure, trade deficit increased 18.5% y/y in May 2016, as imports were up 8.1% y/y.

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In 5M16, the trade deficit is down 7.8% y/y to US$ 1.87bn excluding one-offs. Detailed foreign trade statistics will be available on June 20, 2016.

Money transfers down marginally in May 2016

In May 2016, money transfers decreased 4.9% y/y to US$ 92.9mn, according to NBG. Reduced remittances from Russia (-17.4% y/y, 33.4% of total), Greece (-29.9% y/y, 11.6% of total), and Ukraine (-10.2% y/y, 1.7% of total) were the major contributors to the drop in total money transfers. Meanwhile, remittances grew from Italy (+5.8% y/y), USA (+16.6% y/y), Turkey (+19.0% y/y), Israel (+85.3% y/y), and Spain (+8.6% y/y). Overall, money transfers were down 3.1% y/y to US$ 424.8mn in 5M16.

Producer price index down 0.4% m/m and down 2.8% y/y in May 2016

PPI for industrial goods decreased 0.4% m/m in May 2016, according to GeoStat. A 8.2% decline in mining and quarrying prices contributed most to the overall index change. Prices were also down for supply of electricity, gas and water (-1.6% m/m).

Annual PPI decreased 2.8% in May 2016. Falling prices in manufacturing contributed most to the overall index change (-4.8% y/y, -4.02ppts) as prices were down for manufacture of food products, beverages and tobacco and manufacture of basic and fabricated metals. Supply of electricity, gas and water prices were up 17.4% y/y.

NBG cuts its policy rate to 7.0%

At its meeting on June 15, 2016, NBG’s monetary policy committee cut its policy rate by 50 basis points to 7.0%, as the bank is gradually easing its monetary policy, citing that it would further continue gradual reduction of the key rate in mid-term period to a neutral level (5-6%). The next committee meeting is scheduled for July 27, 2016.

Fixed income

Corporate Eurobonds: Bank of Georgia Eurobonds (GEBGG) closed at 4.0% yield, trading at 103.8 (-0.3% w/w). GOGC Eurobonds (GEOROG) were trading at 102.1 (+0.2% w/w), yielding 4.5%. Georgian Railway Eurobonds (GRAIL) traded at a premium at 110.5 (-0.6% w/w), yielding 5.7%. Georgian Sovereign Eurobonds (GEORG) closed at 110.5 (-0.5% w/w) at 4.4% yield to maturity. Georgia Eurobonds, YTM (%)

Equities

BGEO Group (BGEO LN) shares closed at GBP 24.92/share (-0.04% w/w and +6.18% m/m). More than 377k shares traded in the range of GBP 23.72 – 25.12/share. Average daily traded volume was 85k in the last 4 weeks, more than in the previous month. FTSE 250 Index, of which BOGH is a constituent, declined 2.47% w/w and lost 2.57% m/m, respectively. The volume of BOGH shares traded was at 0.96% of its capitalization.

TBC Bank (TBCB LI) closed the week at US$ 13.00 (unchanged w/w and +11.59% m/m). More than 712k GDRs changed hands in the range of GBP 12.75 – 13.45//GDR. Average daily traded volume was 59k in the last 4 weeks, more than in the previous month.

Georgia Healthcare Group (GHG LN) shares closed at GBP 2.85/share (+9.41% w/w and +28.05% m/m). More than 143k shares were traded in the range of GBP 2.60 – 2.85/share. Average daily traded volume was 90k in the last 4 weeks. The volume of GHG shares traded was at 0.05% of its capitalization. BGEO Group PLC (BGEO LN)

Money Market

Refinancing loans: National Bank of Georgia (NBG) issued 7-day refinancing loans of GEL 350mn (US$ 164.1mn).

Certificates of deposit: NBG sold 91-day, GEL 20mn (US$ 9.4mn) certificates of deposit, with an average yield of 6.45% (down 105bps from previous issue).

Ministry of Finance Treasury Notes: 5-year GEL 10.0mn (US$ 4.7mn) T-Notes of Ministry of Finance were sold at the auction held at NBG on June 15, 2016. The weighted average yield was fixed at 9.392%. The nearest treasury securities auction is scheduled for June 29, 2016, where GEL 25mn nominal value 1-year T-Bills will be sold.