- Market hasn't reacted; investors should act protectively
- Pricing is comfortable because Israeli shares have been stable
Investors should consider moving a substantial part of their portfolios out of Israel for some time because of the deteriorating security situation, the chief economist at one of the country’s largest investment banks said on Monday.
Even though the violence might subside and the market hasn’t reacted to it, investors are currently exposed to risk and should act protectively, according to Yaniv Hevron, chief economist of Excellence Nessuah Investment House Ltd., Israel’s third-largest investment bank by assets under management. Because shares abroad have declined, prices are “comfortable,” he added.
“Israel was much more stable during the sharp global declines and was influenced less by concern about China and Europe, but at the moment, the risk here is high,” Hevron said in a report to investors.
Eight Israelis have been killed this month by Arabs attacking them with knives, rocks, guns and cars. About 45 Arabs have been killed by Israeli fire, including some following attacks on Israelis and others in confrontations with Israeli troops. An Eritrean man was killed by Israelis who mistook him for an assailant.
Previous bouts of violence have affected the economy, and if the current wave of attacks continues for a long period, it could affect growth, Hevron said. He cited businesses reporting weak demand, especially in areas where the attacks have been most prevalent.
Israelis have been moving investments abroad for years, but the trend hasn’t exhausted itself, said Ayelet Nir, chief economist at Yetzirot Investment House.
“It’s not logical for such a large proportion of a portfolio to be invested in a small country whose economy is relatively small and exposed to geopolitical developments and risks,” Nir said. “Recent events sharpen this need to expand the proportion of investments abroad.”
Israel’s economy will probably expand by 2.5 percent this year, slowing slightly from the 2.6 percent growth recorded last year, the Central Bureau of Statistics said Sunday. Growth is being driven mainly by private consumption, while exports and investment decline, the bureau said.
Global economic weakness and the Israeli economy’s dependence on private consumption makes the economy more vulnerable to the security situation, said Rafi Gozlan, head of research at Israel Brokerage & Investments Ltd. The bureau’s growth estimate for the year is probably “too optimistic,” he said.
“It’s too early to assess how much the economy will be hurt by the rapid deterioration in the security situation,” Gozlan said. “Still, it makes sense that growth in the fourth quarter of the year will be pretty weak.”