Dollar earners unfazed by weakness

October 15, 2006 07:45

"The weak dollar story is a shekel-specific phenomenon, not a dollar story per se as the dollar holds up against other foreign currencies."

2 minute read.

The weakness of the US dollar is negatively affecting some receivers of dollar delineated income in Israel, but financial advisers and American immigrants are convinced the Bank of Israel will step in to control the strength of the shekel. "The weak dollar story is a shekel-specific phenomenon, not a dollar story per se as the dollar holds up against other foreign currencies," Katsman said. "For the moment, we are telling our clients to stay put and not to panic. My hunch is that as the weak US currency is starting to negatively affect Israeli exports and the country's economy, the Bank of Israel will be bound to intervene with a change in interest rates," said Aaron Katsman, president of Global Investments at Profile Investment. "The drop of the dollar mainly affects individuals living in Israel on tight dollar incomes from social security [and pensions] as there is not much that can be done about that given that the cost of changing their financial structure would outweigh the financial benefit," said . Nevertheless, individuals contacted by The Jerusalem Post didn't seem overly concerned. "Most of our income in Israel derives from pension income in dollars so it does hurt when we go and cash money [exchange for shekels] and thus we are a bit more careful with our expenses," said Menes Lieber, a US immigrant and former teacher. "But I don't think it is an extreme or permanent situation we are facing as the dollar has been falling gradually and I am confident it will go up again." Similarly, Kaye Zweig, a former senior accountant who made aliya in 2001 and receives all her income from the US is not all that worried. "The difference is not that significant, when I arrived the dollar exchange rate stood at NIS 4-plus I can still live here better financially," she said. "Furthermore, I don't think that Mr. Fischer [Governor of the Bank of Israel Stanley Fischer] will allow this situation to deteriorate." Despite the astronomic strength of the shekel against the dollar, having risen some 7.5 percent this year, Morgan Stanley this week still called the shekel "undervalued." According to the investment bank, the shekel's fair value against the dollar is NIS 3.90, which would mean it remains undervalued by 9.5%. The situation, according to Katsman, is not as relevant for people with dollar incomes and, for example, shekel deposits because they "would already be hedged against currency fluctuations with well diversified portfolios." Katsman recommends the structure of a diversified portfolio with 50% to 60% of assets be exposed locally to the shekel, while the remaining 40% to 50% would be exposed to global markets and other foreign currencies such as the euro and Asian monies. Meanwhile, David Kimche, president of Kimfo Financial Strategies Ltd., a multi-family office, which acts as an independent trusted advisor on investment strategies to individuals and families, recommended reallocating, in parts, from US dollar- to index-linked shekels. "There has to be certain flexibility in a financial package," said Kimche. "The first step is to identify the exposure and then to find the specific financial instruments to manage and mitigate the exposure if you don't want to speculate."

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