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Merrill Lynch investors to proceed with caution in 2006 given the political risks and high valuations that currently overshadow the Israeli market.
"While market fundamentals look supportive and will not be jeopardized, we cannot ignore the key risks with the political uncertainty, elections in the Palestinian Authority and, above all, rich evaluation of the market," said Haim Israel, Research analyst at Merrill Lynch Israel in a report Wednesday.
Israel said high dividend paying stocks, such as Bank Hapoalim and Bank Leumi, should be the focus for investors. He also highlighted Bezeq and Israel Chemicals as the stocks to watch in 2006, and named Comverse and Audiocodes as key performers in the technology market.