What started with surging inflation and higher interest rates, turned even worse with the war launched on Israel by Hamas. The once surging Israeli economy has stalled and it’s a cause for worry for many. I have held many conversations with friends and clients and the common denominator for them is that the economy is going to suffer for a very long time. And that’s just based on the war with Hamas. If this were to spread to multiple fronts, then the situation here would be much, much worse.
Among the data they all point to is a sinking shekel. Damian Chmiel of Finance Magnates writes, “The central bank in Israel has taken unprecedented measures to counter one of the most potent bouts of currency volatility that the shekel has experienced in the past two decades. Despite pumping billions of dollars into the market, the bank has not halted the steep currency depreciation following the initiation of a terrorist attack by Hamas from Gaza that led the Israeli government to announce it was at war.” The shekel dropped to levels not seen since 2016.
On the stock market side, the leading index the TA-35 had dropped nearly 20% from it’s highs and is trading at levels last seen in 2018. Israeli tech stocks that trade in the US have gotten clobbered as well. The real estate sector, which was already suffering due to higher rates, is on the verge of collapse.
Investor confidence has been shaken and there is an air of worry and pessimism out there. That’s exactly why I am, and you should maybe start getting excited about investing in Israel. It’s hard to find a silver lining in this situation but for investors sitting with cash or for young, first-time investors, this could be an ideal situation. You certainly need to do your own homework and research and make sure any investment fits your financial profile. This is certainly not a recommendation, but something you should maybe start thinking about.
The Tel Aviv Stock Exchange, 2020. (credit: MIRIAM ALSTER/FLASH90)
It may be time to take a “bigger picture” approach. What do I mean by that? Instead of focusing on the current situation and the real possibility that this war could drag on for months, focus on the day after.
According to the most famous of investment adages, one should buy when prices are low and sell when they are high. Although there is no sure way to declare that the market has finished falling, it is certain that the market is cheaper now after a 20% decline than it was 20% ago.
In other words, the market is somewhat “on sale.” As I have written numerous times, not to get too stereotypical but let’s face it, as consumers, no one likes buying retail, and with the recent market pullback it’s as if the investor is buying wholesale! If the Rami Levi or Osher Ad supermarket chain had a 20-30% off sale, shoppers would be lined up around the block to have a chance to make purchases at rock bottom prices.
Learning from history, we see that these types of military operations tend to cause short-term economic softening, but longer term it’s not a negative for the economy, in fact it leads to stronger growth. At some point the destruction of the South will be rebuilt. (I am not even talking about the rebuilding of Gaza).
Tourists will come back in droves. And let’s not forget that 200,000-300,000 reserve soldiers will be going back home and both working and spending and that will be a boom for the economy. To quote another well-known investing adage, you want to “Buy the rumor, sell the news.” This refers to a trading strategy where a trader buys a security based on speculation about an upcoming news announcement or data, and then sells the security once the news is made public.
Not that I know what the future holds, but hours before the ground invasion started the shekel dropped to 4.08 versus the US dollar and is now back under 4.0. Again, that doesn’t mean that it won’t weaken again, but in my decades of professional investing experience, this type of reaction is normal.
It’s also important to note that maybe the biggest catalyst to both an upswing in both stocks and real estate would be the Bank of Israel started to cut interest rates. While they held rates steady at their last meeting, I think it’s imperative that they start cutting to jump start the economy.
Is it time to start investing in stocks?
Now may be the time to take advantage of the recent market plunge and look at starting to invest in stocks. It’s important to remember that you can lose money investing in the stock market, and there is certainly no guarantee that the market won’t continue to drop.
The same holds true with real estate. Remember that short-term volatility happens all the time, and markets can and will drop, just look at what is currently happening. The most important aspect to determine how to react to market jitters is to figure out what your time horizon for the investment is. If you have a short- to mid-term time horizon, you have no business investing heavily in stocks. If you have a seven-year or longer outlook, then short-term swings shouldn’t cause worry and you should keep your eye on the long-term performance of the stock market.
I’ve written the past few weeks on how we can help Israel through the war. This may be the best way, as you help the economy, and over time you may end up reaping the profits.
May all the families of the fallen be comforted. May the hostages be released. May the injured have a speedy recovery. May our dear soldiers be safe and protected.
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 Katsman is the author of Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing. www.gpsinvestor.com; aaron@lighthousecapital.co.il.
