Foreign residents purchased nearly $1.5 billion worth of shekel assets through derivative financial instruments in April, a conspicuous spike after only $93 million were bought in March, Bank of Israel data revealed this week.
"This is a huge amount, the most since the last quarter of 2004," said Excellence Nessuah's Chief Economist Shlomo Maoz, who was cautious about the jump.
"It is completely speculative - not in direct investment, stocks, bonds or deposits. Hot money is pushing the shekel up, and in a couple months, when [the derivatives] are realized, it will be pulled back out of the country, leading to the shekel's devaluation," he warned. "It will leave as easily as it came in."
The central bank's data also indicated that mutual funds and banks are continuing to send Israeli money abroad, Maoz noted.
Foreign residents invested $507m. in Israel directly and in portfolios (shares and bonds) in April, more than 40 percent less than in the average month in 2005.
Of this amount, $461m. was invested directly in April, down from $505.3m. on average last year; $91m. was invested in shares traded on the Tel Aviv Stock Exchange, down from an average $178m. last year, and $10m. in Israeli stock offerings abroad, down from $107.5m.
These purchases were offset by a total of $72m. in bonds dumped on the TASE by foreign residents who had bought $42.7m. in the average month of 2005.
Short-term purchases of foreign currency by the business sector through derivatives, following the pattern of similar purchases under a high shekel in past years, serve to stabilize the foreign currency market, the Bank of Israel said.
In April, the shekel gained 3.5% against the dollar, 2.5% against the currency basket, 3.3% against the euro and 1.6% against a basket of emerging market currencies, the central bank said, noting that foreign exchange risk - as measured by the standard deviation of shekel/dollar options - fell slightly to 5.5%.
The central bank attributed the shekel's rise to the weakening of the dollar globally and decreasing domestic uncertainty, "apparently ... as a result of the clarification in the political map following the elections."
Israeli institutional investors have sent a total of $1.4b. abroad since the beginning of the year.