Market Capitalization (GEL)
The more useful benchmark for judging the market performance of the private companies usually is the ratio of the market capitalization over the Gross Domestic Product (GDP) of that country. Figure 220.127.116.11 shows the values of this ratio for Georgia and also for other Eastern European (mainly former Soviet Block) countries, whose economies are in transition mode from the command economy to a market driven system likewise Georgia. It can be seen from this Figure that Georgian stock market is rather underdeveloped in comparison to other Eastern European countries, not to speak about the Western European Countries and the USA, which have much higher values of this ratio.
Fig. 18.104.22.168. Market Capitalization as % of GDP for Eastern European Countries, including Georgia
It is interesting to note that about 82.8% of the total market capitalization is formed by only 10 companies. The remaining 278 companies that are admitted for trading at the GSE constitute to only about 17.2% of the total market capitalization. This is shown in Fig. 22.214.171.124:
Fig. 126.96.36.199 Market Capitalization of 10 Leading Georgian Joint Stock Companies
Volume and Value of Trades. The figures given in Table 188.8.131.52 reflect the combined volume and value of trades of all Joint Stock Companies conducted at GSE since its inception to date.
Table 184.108.40.206 Volume & Value of Trades at GSE
Volume of Trades (Shares)
Value of Trades (GEL)
* Apr. – Dec. 2000; ** Jan. – Oct. 2003.
Value Turnover. The value turnover is calculated by dividing the annual value of trades over the total market capitalization in that year. This is shown in Table 220.127.116.11 for years 2001 and 2002:
Value of Trades (GEL)
Market Capitalization (GEL)
Table 18.104.22.168 Value Turnover at GSE
The large part of the total value of trades comes on the trading of the securities of 10 leading companies mentioned in the above. This is shown in Fig. 22.214.171.124:
Fig. 126.96.36.199 Value of Trades of 10 Leading Georgian Companies
Liquidity. All the factors considered in the previous paragraphs, i.e. Low Market Capitalization, low Volume and Value of Trades, and low Value Turnover, all indicate that there is little (or even no) liquidity at the GSE. Indeed, out of 282 companies, whose shares are currently admitted for trading at the GSE, the shares of only 93 companies (i.e. 33%) were traded in 2002. The shares of the remaining companies were not traded during the year at all. This is shown in Figure 188.8.131.52:
Fig. 184.108.40.206 Number of Admitted Companies Actually Traded in 2002
Even those companies, whose shares have been traded in the past, do not satisfy the requirements for getting listed at the GSE. The main listing criteria are: a) Company should be functioning for more than 3 years; b) Equity Capital of a company should be greater than 100,000 USD; and c) Company should be profitable for 2 years during the last 3-year period (GSE, 2003). Out of 282 companies, only 2 companies were listed at the GSE in 2001, while only 1 company has been left listed in 2002, after the GSE removed 1 company from the list. Furthermore, the total number of trades and therefore an average number of trades per trading session are also extremely low, as shown in Tab. 220.127.116.11:
Table 18.104.22.168 Average Number of Trades per Trading Session
Total Number of Trades
Number of Trading Sessions
Average Number of Trades per Session*
* Figures are Rounded to the Nearest Integer
In total, 309 trading sessions have been held during 2000 – 2003 and 3780 trades have been executed during this period. It then follows, that average number of trades per trading session (i.e. per day) is equal to 12. This figure gives some idea about the number of buyers and sellers participating in trades each day. Also note that the total number of the securities admitted for trading at the GSE is equal to 282. All these means that there are virtually no liquid shares at the GSE.
Composite Index. The poor performance of the GSE in terms of all the above-mentioned market indicators indicate that the nature of the composite index would be rather unreliable and would not reflect the true picture of market performance. One solution to the problem is to select only the leading companies (blue-chip companies) and construct the index for these companies. Indeed, such approach is employed by Georgian Investment Bank Galt & Taggart (G&T) Securities LLC, which publishes so-called G&T Blue-Chip Index. This is shown in Fig. 22.214.171.124:
Fig. 126.96.36.199 G&T Blue-Chip Index (GEL), 2002
The problems facing GSE. Below is the problem tree describing the set of problems currently facing GSE:
General recommendations for improving the performance of GSE. The fact that at present there is no sound and liquid capital market in Georgia can be attributed to two fundamental problems: (I) A low potential of the capital market in Georgia; and (II) A high unrealized potential of Georgian capital market. The government of Georgia (GoG) should undertake both, long-term and short-to-medium term measures in order to improve the performance of Georgian Stock Exchange (GSE).
(I) It is suggested that the potential of the capital market in Georgia could be increased by means of:
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