As global markets tumble and investors wonder what to do with their portfolios, “Globes” asked key people on the capital market how they saw the situation.
Rinat Ashkenazi, chief economist at Phoenix Investment House, doesn’t think that we are on the way to a hard and prolonged market slide. “I’ll take on the role of reassuring the nation. I think that there’s overshooting in the US, and that this is affecting us as well.
“So why has the stock market switched to a decline? Everyone expected a soft landing for the US economy, until a week ago. But at the end of last week, an employment report was released that showed a rise in unemployment in the US, and that fewer jobs had been created than was expected. When the figures appeared, the market took fright. The fact that we are after a tremendous rally and p/e ratios are not cheap doesn’t help”
Dan Ellis, head of the Capital Markets Research Department at First International Bank of Israel, says, “We are in a sort of initial shock wave. I don’t think that in the coming days we will move to a more extreme situation than the declines we have seen so far, but actually to some kind of calming down on the markets. I think that the situation that has arisen will rapidly accelerate interest rate cuts in the US, and that’s good news for the stock market.”
On the other hand, Rami Dror, managing partner and CEO of Value Advanced Investments Group, fears that a perfect storm could hit the stock market. He points out that the declines in the US (the Nasdaq index fell nearly 5% in two sessions) come against a background of “the figures at the end of last week that show signs of a slowdown in the US economy” and also “after Donald Trump’s fall in polls on the race for the presidency.”
According to Dror, the upset in the Japanese economy (an interest rate hike) have led to a tectonic shift in the movement of money from Asia to the US, and there are also the events in the US itself. “It’s a combination of an economic slowdown in the Far East and the US, and as a result of that a plunge in share prices on the stock exchanges. Where will it lead? It’s still too soon to tell, but clearly the level of nervousness on the markets is high.”
Meitav Dash chief economist Alex Zabezhinsky says that in the past there was a correlation between economic weakness and a strengthening stock market. “The market priced in economic weakness and an interest rate cut, expectations that boosted the markets. Now, we are seeing a reverse situation: although an interest rate cut is thought to be imminent, the declines on Wall Street have deepened. It happens the moment that the market starts to fear a recession instead of a slowdown in growth.”
What should be done with investment portfolios?
“Stay patient and don’t let emotions affect the portfolio,” Ashkenazi advises. “Investments are for the long term. In recent years, we have been through correction periods, and we don’t know how to time the market. It’s best to let the experts manage the money, or to sit passively and wait, and not make drastic changes.”
“The most important thing to say is that when everyone’s tense, it’s preferable to do less, or even not to do anything at all, and to let the wave pass,” Ellis adds. “Don’t buy and sell in haste.”
At least as far as the collapse of the Japanese stock market is concerned, Dror is fairly sanguine. “Israeli investors are fortunate in that their pension funds are not invested in Asia. The proportion invested in that territory is low. Today, there is a large bias towards investment in the US market. Israeli investment portfolios are highly sensitive to the US and Israel. It should be pointed out that the markets in the US have fallen 5% from their peak. Beyond the immediate drama, it’s not of the same order as what has happened in Japan.”
Where are the opportunities?
Ashkenazi: “I believe in the major US indices – Nasdaq, and the S&P 500. No-one knows whether they’ll fall another 5-10%. But as long as you believe in humanity and the economy, the markets will ultimately rise. After every decline, an opportunity arises. I think that the Israeli market also embodies opportunities. With us, things are more complicated, because of the geopolitical situation. Here too, sectors such as banking and insurance are attractive, it’s simply very dependent on the security situation.”
First International’s Ellis believes that an interest rate cut in the US will be good news for the real estate sector and for infrastructure in the US, and perhaps also for the defense sector. “Developments in the Middle East have a global impact in that respect. The technology sector too, which has been battered for several weeks, will continue to influence and lead in the future,” he says.
What about the foreign exchange market?
Just two months ago, the shekel-US dollar exchange rate was at NIS 3.61/$, against a background of estimates that the chances of a hostage release deal were high. Since then, the rate has risen nearly 6%, to NIS 3.82/$ today, in the face of the tension with Iran and the fear that the conflict will widen.
Financial experts are cautious about forecasting trends on the foreign exchange market, which is very difficult to predict. “Over the years, even when it wasn’t so popular to say it, and the shekel was the strongest currency in the world, we stressed the importance of diversifying currencies in the investment portfolio,” says Ellis. “You have to take acre of currency exposure, and not just to the dollar, but also to the euro and to currencies of other stable economies. We’re seeing that things change very quickly.”
Published by Globes, Israel business news – en.globes.co.il – on August 6, 2024.
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