"Tel Aviv stocks are rightly cheap"

Published date09 June 2024
AuthorBar Lavi and Roi Weinberger
Publication titleGlobes (Rishon LeZion, Israel)
Almost half the year has gone by, however, and the gap is actually widening. The S&P 500 has returned 13% so far this year, and reached a new all-time peak last week. The Nasdaq 100 has jumped 15%, also to peak levels. And the Tel Aviv Stock Exchange? It's lagging a long way behind, with a return of 1.3% on the Tel Aviv 125 Index

Why is this happening? And where is the money exiting Israel going to? We talked to Yotav Costica, chief investment manager at More Mutual Funds, about the burning issues in the financial markets.

"Foreign investors are leaving Israel, that's a fact. It can clearly be seen in the numbers," Costica says. "If we compare October, on the eve of the war, with the latest published numbers, for March 2024, we see a dramatic decline in holdings by foreign investors in bonds on the local market. Until October, they represented about 15% of total holdings of Israeli government bonds; today, they're below 9%. That's almost NIS 30 million that have exited."

Is the trend worsening?

"Yes. In March-April, the Israeli stock market performed fairly well. In May, we saw growing fears."

"Our children will pay for the county's expensive debt"

Costica commented specifically on the government bond market, after the yield on ten-year bonds rose above 5% last week, for the first time since 2013. Yields have moderated slightly, but the value of Israel government debt is still historically low. "This has implications that should worry all of us," Costica said. "A country raising debt that it needs more than ever, at high interest rates. The consequence for the total budget cake is clear. Interest expense contributes nothing to my life, your life, the lives of all of us, and nothing to the services we receive from the state. There will be less money for education, health, culture, and the ones who will pay will be our children and the next generation."

There's a large gap between the ratings that the international rating agencies award us and the situation in practice. Why is that?

"The three rating agencies currently rate us as belonging to the A family; all the ratings, incidentally, with negative outlooks, meaning that there is a likelihood that we will see a further downgrade within the next twelve months, but still, A is a very respectable place.

"In practice, we are rated A, but traded like countries with ratings of BB+, BBB-. This means that investors look at Israel and say 'We don't believe the rating agencies.' In my personal view, this is going...

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