Don't miss out on investing in Israel's economic juggernaut

Stay local or go global? Find the answers here.

By AARON KATSMAN

APRIL 4, 2018 20:25

money (photo credit: REUTERS) — money

(photo credit: REUTERS)

During Passover, I was at a park and overheard a conversation between a couple of tourists. One of them had mentioned that it’s been over 10 years since he has been in Israel and the change that has taken place over the last decade was mind boggling.

The fact is that the tourist was spot on. Over the last decade, Israel has been a bright spot in an otherwise pretty gloomy global economy. Open the business or science section and, once again, Israel will appear over and over as a result of some cutting-edge innovation or because another Israeli company has been purchased.

Israel sported 3.4% GDP growth in 2017, well above most of the western world. Growth estimates for 2018 are coming in around 3.5%. Israel has seen its’ unemployment rate drop to under 4% with a workforce that continues to expand. How many western economies can say that? Throw in the mix one of the stronger global currencies over the last decade as well, and you have a country that’s becoming a real economic force to be reckoned with.

As I have mentioned before, the very successful book, Start-Up Nation: The Story of Israel’s Economic Miracle, certainly made the case for why Israel has flourished economically against all odds. Even though it’s been on bookshelves for nearly a decade, I can’t tell you how many emails 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 way of gaining exposure to the Israeli economy. If you want exposure to the strong domestic growth you could buy, for example, a local supermarket chain like Rami Levy 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 advisor.

While this may be fine for some investors, for native English speakers this is a big step. Due to new IRS PFIC (Passive Foreign Investment Company) rules, many traditional investments, like local Israeli mutual funds and exchange-traded funds (ETFs), have essentially become off-limits due to exorbitant potential tax exposure.

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 Asian or Latin American emerging markets will find many countries with 3+% growth. Local food companies and telecommunication companies are a dime a dozen.

Go global?

The real growth story is in the ingenuity and creativity it exports. Those excited after reading Start-Up Nation weren’t running to invest in a small Israeli canned food company. 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. Just a few weeks ago KLA Tencor announced it was purchasing the Israeli company Orbotech for $3.4 billion. We all know about Intel’s acquisition of autonomous driving company Mobileye for over $15b.

Whether it is Google, Johnson & Johnson, IBM, Microsoft or any other of the multitude of well-known companies, they all come to Israel to acquire or invest in today’s cutting-edge technologies. From companies that are trying to deliver insulin orally to help alleviate the need for invasive injections (Oramed), to companies that lead the world in computer security (Checkpoint), to companies that are leading the move in cybersecurity (Cyberark), what Israel does very well is power the world based on technology and that’s what becomes exciting as an investment.

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 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.

Hag Sameach.

The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.

aaron@lighthousecapital.co.il
Aaron Katsman is author of the book Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing (McGraw-Hill), and is a licensed financial professional in the US and Israel, who helps people who open investment accounts. aaron@lighthousecapital.co.il