"The macro statistics released recently indicate a slowdown in the economy, and that is even before the impact of the security incidents," says Idan Azoulay, managing director at Epsilon Mutual Funds. "We can expect the October figures to indicate a worsening of the slowdown, chiefly because of a further fall in consumption, and also because of sluggish growth in international trade that will have an adverse effect on Israeli exports. At present, it looks as if the market has not fully priced in these factors, but the market will presumably react to the figures if they continue to point to a negative trend," Azoulay adds.
IBI Investment House chief economist Rafi Gozlan shares this view, but points out that the security incidents have still not found expression on the local market. In a market review, he writes, "The rapid deterioration in the security situation in the past few weeks has so far been perceived on the local capital market as having a minor effect on the Israeli economy. The Israeli economy's risk premium, as measured by the CDS on the government of Israel and by the nominal shekel exchange rate against the basket of currencies, continues to move around a low point. This is apparently because of the perception that rounds of violence are part of Israeli reality, and past experience shows that they have had a small and diminishing effect on the Israeli economy."
Gozlan adds, "The way in which the current deterioration is priced is deficient, if only because of the potential for much greater damage to consumers' sense of security, and hence to private consumption, the main growth engine of the Israeli economy in the past year. In our view, the current level of the shekel makes it possible to buy fairly cheap protection against a worsening of the security situation, so that, from the point of view of risk-reward, in our opinion it is worth raising the foreign currency component in the investment portfolio."
Published by Globes [online], Israel business news - www.globes-online.com - on October 19, 2015
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