{"id":1533,"date":"2024-05-13T17:49:47","date_gmt":"2024-05-13T17:49:47","guid":{"rendered":"https:\/\/eoninvestment.com\/?p=1533"},"modified":"2026-04-16T10:35:32","modified_gmt":"2026-04-16T06:35:32","slug":"%e1%83%a5%e1%83%95%e1%83%94%e1%83%a7%e1%83%9c%e1%83%98%e1%83%a1-%e1%83%a4%e1%83%90%e1%83%a5%e1%83%a2%e1%83%9d%e1%83%a0%e1%83%98","status":"publish","type":"post","link":"https:\/\/eoninvestment.com\/ka\/2024\/05\/13\/%e1%83%a5%e1%83%95%e1%83%94%e1%83%a7%e1%83%9c%e1%83%98%e1%83%a1-%e1%83%a4%e1%83%90%e1%83%a5%e1%83%a2%e1%83%9d%e1%83%a0%e1%83%98\/","title":{"rendered":"\u10e5\u10d5\u10d4\u10e7\u10dc\u10d8\u10e1 \u10e4\u10d0\u10e5\u10e2\u10dd\u10e0\u10d8<\/span>"},"content":{"rendered":"

How should we consider the country factor when evaluating an investment project?<\/p>\n\n\n\n

The question addresses several important points:<\/p>\n\n\n\n

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  1. Is the country’s risk diversified?<\/li>\n<\/ol>\n\n\n\n

    Diversification of risk is dependent on the specificity of the risk and the investor\u2014how much an investor can, or is willing to, spread their investments across different countries.<\/p>\n\n\n\n

    The majority of international investors are constrained by the fact that a significant portion of their investments is concentrated in their own country. Consequently, their investments cannot be diversified.<\/p>\n\n\n\n

    Moreover, correlations between investment bases increase. While diversification segments markets, it narrows bases. This means that part of the country risk allocation already occurs within overall systemic risks (i.e., specific risks are transformed into systemic risks, but some specific parts remain).<\/p>\n\n\n\n

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    1. Is it better to include the country factor in nominal returns or in discount rate calculations?<\/li>\n<\/ol>\n\n\n\n

      Some professionals argue that since a country’s risk is diversified, it should be accounted for in cash flows, not in discount rates.<\/p>\n\n\n\n

      However, practically, the problem is that real risks are not described by the spread of defaults, national bond prices, and obligations within a country. Instead, it’s about risk correlation between obligations and stocks. The first is more certain, but the second is more relevant.<\/p>\n\n\n\n

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      1. Can the country’s risks be replaced by Beta instead of Equity Risk Premium?<\/li>\n<\/ol>\n\n\n\n

        The formula reminds us: R(i) = R(f) + \u03b2*(ERP)<\/p>\n\n\n\n

        The challenge here is that Beta imposes a large share of liquidity parameters. Thus, diversification Beta will be higher than Beta based on risk. Beta cannot be high if transactions are limited and the amount is small. Therefore, the transfer of the country factor to Beta is doubtful.<\/p>\n\n\n\n

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        1. How should we calculate the country’s risk?<\/li>\n<\/ol>\n\n\n\n

          A complicated task, but there are methodologies even when there’s insufficient information about a country. However, for me personally, it’s quite a subjective methodology:<\/p>\n\n\n\n

          For example, in real estate development in Georgia, how would we assess the risk of discounting a project?<\/p>\n\n\n\n