Your Investment: Invest in Israel

Israel has more companies trading on major US exchanges than any other country in the world, except for China.

By AARON KATSMAN
April 11, 2012 22:11
4 minute read.
Finance Minister Yuval Steinitz

Finance Minister Yuval Steinitz 390. (photo credit: Marc Israel Sellem)

I have written in numerous publications about investing in Israel. While many of my articles may seem a bit too “Rah Rah” or cheerleader-like, and that they were actually written by the Israeli Finance Ministry, the facts are that Israel has turned into a sought after investment destination.

Economic data certainly supports the fact that not only has Israel weathered the financial crisis, but actually has flourished during this time period. With the US reporting an unemployment rate over 8 percent (the real jobless rate is closer to 18-20%), the situation in the holy land is much better. Unemployment around 6% and dropping, GDP grew at a 4.7% clip in 2011, and even with slower growth looks to post 3.1% growth this year.

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How many Western economies can say that? Throw in a strong currency – maybe the best sign of overall economic strength – and the Israeli economy continues to push ahead nicely.

The very successful book Start-Up Nation: The Story of Israel’s Economic Miracle (New York, 2009) certainly made the case for why Israel has flourished, against all odds, economically. I can’t tell you how many e-mails and phone calls I have received from people who have read the book and are now all revved up to invest in Israel. The question I hear the most is, “How can I invest in Israel?”

Stay local?

For many investors, investing in local Israeli stocks is one alternative way of gaining exposure to the Israeli economy. If you want exposure to the strong domestic growth you could buy, for example, a local food company like Strauss, or phone company like Bezeq. In order to do so you need to open up a local Israeli brokerage account, invest in Shekels and speak in Hebrew to a local adviser. While this may be fine for some investors, for native-English speakers this is a big step.

Keep in mind that while Israel’s economy is strong, there is a big world out there with many countries boasting both solid economic fundamentals and growth. A tour through Asia or Latin America emerging markets will find many countries with 3+% growth. Local food companies and telecommunication companies are a dime a dozen.

In addition, not all in Israel is so rosy. The Bank of Israel recently ratcheted down Israel growth numbers for 2012, to 3.1% because of the continued global slowdown and just called for higher taxes to fund budget deficits.

The local real estate market appears to be cooling, and I predict another summer of discontent with large numbers of tent protesters trying to change the Israeli economic system. Last summer’s protests certainly didn’t help economic growth as we ended up getting higher taxes, the nationalization of early childhood education and continued governmental (or more accurately prime ministerial) intervention in the economy, most notably in gas prices.

None of this will improve growth prospects, you can be sure.

Go global?

The real growth story in Israel is the ingenuity and creativity exported by Israel. Those excited after reading Start-Up Nation weren’t running to invest in a small company that invests in canned-Israeli food. In fact the Tel- Aviv Stock Exchange (TASE) has been underperforming major global indices for more than a year and a half. Rather they want to be part of all the ingenuity and creativity that Israel exports. Investors want to invest in companies that power the world.

It’s no secret that the largest multi-national companies in the world are very active in Israel. Whether it be Microsoft or Johnson and Johnson or IBM – or any of a multitude of other well-known companies – they all come to Israel to acquire or invest in today’s cutting-edge technologies.

From companies that can put a camera in a pill to help alleviate the need for invasive gastro procedures (Given Imaging), to companies that lead the world in computer security (Checkpoint), to companies that are leading the move into cloud computing (Radware), what Israel does very well is power the world based on technology and that’s what becomes exciting as an investment.

These companies, the majority of which trade in the US, have been surging in price over the last six months and with increased IT spending by major corporations on the horizon, these companies have the potential to benefit. The easiest way to access these companies is via the Israeli stocks that trade in the US.

As has been widely reported, Israel has more companies trading on major US exchanges than any other country in the world, except for China. Not all Israeli companies are created equal and investors should do in-depth research before investing.

As some of these companies are not very large, the smallest piece of news can send their stocks either soaring or tumbling. It’s therefore important to speak with your investment adviser to see how, if at all, investing in up-and-coming Israeli companies fits into your overall investment portfolio.

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Aaron Katsman is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States.


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