Bank of Israel Shifts Some Reserves to German Stocks

The Bank of Israel’s monetary policy committee decided to increase the amount of the institution’s foreign reserves invested in German equities at the expense of its U.S. stocks portfolio.

The committee, in an Oct. 1 vote, approved the transfer of 0.5 percent of the central bank’s reserves, which stood at a record high $79.9 billion at the end of September, to German equities from U.S. stocks. Before the change, 4.7 percent of the reserves were invested in the U.S., 0.24 percent each in Germany and France, and 0.5 percent in the U.K., according to a statement posted on the central bank’s website.

“The market operations department believes that under the current conditions in global capital markets, shifting part of the portfolio to investment in Germany conforms with the department’s portfolio management objectives,” the bank said in the statement. “The proposed change isn’t expected to affect the reserves portfolio’s overall level of risk.”

Central banks around the world are looking for alternatives to holding government bonds as yields remain low. In the month before the Bank of Israel decision, Germany’s benchmark DAX Index rose about 6 percent, double the gain of the S&P 500 Index during the same period. The German index rose today by 1 percent to 8,951.33 at 5:08 p.m. in Frankfurt.

The statement didn’t say whether the change had already been made, and a bank spokesman wouldn’t comment.

Lone Dissenter

The monetary policy committee voted four to one in favor of the new investment mix. The lone dissenter reasoned that the bank should wait until the end of the year, when the panel would hear the department’s comprehensive proposal for asset allocation, the statement said.

The central bank began investing a portion of its foreign currency reserves in U.S. equities in March 2012 to diversify, reduce risk and improve performance, Barry Topf, a member of the monetary committee, said. Initially, 3 percent of the reserves portfolio was invested in U.S. equities. Since then, the monetary policy committee has expanded to other markets and increased the proportion of the reserves available for investment to 6 percent.

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