It’s The End of the World as We Know it
Written by: Aaron Katsman | June 20, 2007
By Aaron Katsman
www.IsraelNewsletter.com
Once again good news on the Israeli economic front has been met by a Merrill Lynch analyst warning that Israel’s admission to the OECD will be the end of the Israeli capital markets. As I posted when this news was actually released, just as former Bank of Israel Governor Dr. David Klein needs to relax, so too does this analyst. Let’s remember that about $21 billion of foreign investment came into Israel in’06. Now Merrill is out there doing their best chicken little imitation by saying, “The moment Israel is defined as a developed rather than an emerging market, not one foreign investor will invest time and resources here, and this will herald the end of the era of foreign investment in Israel.” He added that the switch to the developed market category would be a “natural disaster.” A little dramatic don’t you think? “Not one foreign investor will invest time and resources here,” I guess that means Merrill is closing down their shop in Tel Aviv, and heading out of town. No more fat investment banking fees it appears.
He argues as well that the local economy accounts for just 2% of the MSCI Emerging Markets Index, and its share in the global investment pie would fall to 0.2% if Israel is admitted to the developed markets index. What he neglects to mention is that there is a heck of a lot more money under management in developed markets than in emerging markets. So Israel’s weighting may drop, but the amount of money available to invest is substantially more. In addition, don’t forget “overweighting.” If fund managers believe Israel is an attractive investment destination, then they can overweight their position to a much higher level than 0.2%. In fact I was speaking earlier to a good friend of mine at a large and well respected value shop on Wall Street, and they have Israel overweight to the tune of 5%.
I am not sure what Merrill’s agenda is in publishing such doomsday research. But what I can say is that OECD admission is good for debt servicing, and is a feather in the cap of a nation who 5 years ago was on the brink of economic collapse. Let’s all take a step back, take a deep breath, and be proud about how far Israel has come. In fact, if you look at other headlines in today’s paper you will find: Babcock and Brown Opens Office in Israel. They are an Australian international investment firm with tens of billions of dollars under management.
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Aaron Katsman is the lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.
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