As Israeli stocks hover near all-time highs, is there any upside for investors in this small country? The creativity of Israel’s entrepreneurs – particularly in its thriving technology sector–and the openness of its market suggest that this $280 billion economy may still have room to grow.
Investors in Israel will have to weigh the enduring risks associated with this political hotspot against the potential for further growth. The extensive news coverage of unresolved disputes with the Palestinians as well as interstate conflict with Iran mean that politics are perhaps more front of mind for many investors than in other parts of the world, with some choosing to actively avoid or divest from Israel.
Political uncertainty can have a chilling effect on economic growth, particularly in the tourism sector, but a diversified economy such as Israel’s, with many of its productive resources taking the form of intellectual capital, is relatively well equipped to withstand them. Here are four positive indicators for investors considering Israel.
1. One Of The World’s Most Open Economies
Lacking a sizeable domestic market, Israeli companies have had little choices but to look to export markets. But they have significant advantages in doing so, relative to most countries of a similar size.
More than half of the world’s Jewish population is located outside Israel, predominantly in the United States, and many of its own citizens have been educated abroad, contributing to a labor force that is among the best educated and most networked in the world. The strength of Israel’s connections to the United States has provided its companies with exceptional access to the world’s largest economy. Almost 10% of the 473 companies listed on the Tel Aviv stock exchange at the end of 2014 had dual listings on other exchanges, mostly in the United States and London.
Market Realist – Israel offers plenty of opportunity.
Israel is the most developed and technologically advanced economy in the Middle East. Its quality university education and skilled workforce sparked the country’s high-tech boom.
Israel has the second-most start-ups, after the United States, and the most NASDAQ-listed companies outside North America. More NASDAQ-listed companies are from Israel than from all of Europe despite the country being just the size of New Jersey.
And that’s not all. Israel ranks second in the world in terms of qualified scientists and engineers. It ranks third in the world for available venture capital.
Israeli stocks (ISL)(EIS) performed relatively well in 2015 when most global indices (FAM)(FCO) were in the red. The Tel Aviv 25 Index rose 4.6% in 2015 while the MSCI ACWI Index (ACWI), which tracks global stocks, fell 2.3%. The S&P 500 index (VOO) was more or less flat, falling 0.7%.
In the rest of this series, you’ll see why Israeli stocks’ strong performance could continue.
This article was originally published for MarketViews by dianomi ltd.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS
Closed-end funds are traded on the secondary market through one of the stock exchanges. The Fund’s investment return and principal value will fluctuate so that an investor’s shares may be worth more or less than the original cost. Shares of closed-end funds may trade above (a premium) or below (a discount) the net asset value (NAV) of the fund’s portfolio. The Net Asset Value (NAV) is the value of an entity’s assets less the value of its liabilities. The Market Price is the current price at which an asset can be bought or sold. There is no assurance that the Fund will achieve its investment objective.
International investing entails special risk considerations, including currency fluctuations, lower liquidity, economic and political risks, and differences in accounting methods. These risks may be enhanced in emerging markets countries. Concentrating investments in the Israel region subjects a Fund to more volatility and greater risk of loss than geographically diverse funds. Equity stocks of small and mid-cap companies carry greater risk, and more volatility than equity stocks of larger, more established companies.
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