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Boosted by holdings in Israeli stocks, the value of financial assets in the hands of the general public rose 9.6 percent in the first seven months of the year, to total over NIS 1.66 trillion at the end of July from less than NIS 1.52 trillion at the end of 2004, the Bank of Israel said Wednesday.
The general public's asset portfolio grew by a similar amount over the full course of both 2003 and 2004, the central bank said.
Holdings in Israeli shares surged 14.9% to NIS 392.1 billion in July from NIS 341.1b. in December 2004, due primarily to the rise in share prices on the Tel Aviv Stock Exchange. Foreign currencyindexed assets grew 13.7% to NIS 229.3b. and the value of CPI-indexed components rose 11.4% to NIS 508.4b due to the shekel's depreciation against the dollar and rises in bond prices and private-sector bond issues.
The Israeli public's holdings in foreign stocks grew 5.7% to nearly NIS 44.9b., and unindexed local assets grew a mere 2.6% to NIS 486.8b.
Israelis shifted holdings somewhat from unindexed local currency assets to CPIindexed assets, as the inflation figure rose into the middle range of the Bank of Israel's "price stability" inflation target and interest rates remained low, fueling expectations that they would rise.
Due to fears that investors in unindexed local currency assets would lose money, both public and institutional investors preferred to invest in indexed bonds issued by the private sector, which offered higher yields - at higher risk - than government bonds, and less chance of losing capital than inflation-sensitive, unindexed local-currency assets, the central bank explained.
The proportion of deposits and savings in the portfolio "dropped steeply" to 33% of the whole in July from 44% at the end of 2002, the central bank said, attributing the change to the government reform cancelling the tax advantage previously available on investments in deposits.
Institutional medium- and long-term investors increased the share of overseas investment in their portfolios, while the general public and provident funds reduced overseas investments, suggesting that the "home bias" is stronger among households than it is among institutional investors employing foreign investment specialists, the Bank of Israel said.
The "general public" does not include the public sector, commercial banks, or investment by overseas residents.