Barclays Capital came out predicting a quick end to the shallow Israeli recession, and a return to decent growth of 2.9%  by next year.  Keep in mind that the Israeli economy was late to the ‘recession game’ and looks to be an early ‘exiter’ from economic turmoil as well.

With all this great news Barclays said that they expect an Israeli Shekel/USD exchange rate of 3.65 buy the end of the year. That’s a big move from the 3.93 area that the currency is trading at now.

According to Globes: “Barclays sees a less severe recession in Israel, and relatively quick growth recovery. The investment house bases its optimism on the fact that about 75% of Israeli exports are high-tech goods, and Barclays says that a rise in the Tech-Pulse Index - showing a US high-tech recovery - points to stronger Israeli exports. The Tech-Pulse Index, measured by the San Francisco branch of the US Federal Reserve, tracks the US information technology sector.”

It looks like we have started to see this happen. As Tech has led the stock market turnaround in the US, Israeli stocks that trade in the US have been flying, up over 33% this year. Keep in mind that, like it or no, President Obama’s push for alternative energy sources will be huge for Israel, as Israel is one of the big global players in cleantech and water technology. If this trend of a ‘tech led recovery’ continues, look for the Israeli hi-tech scene, from small and mid-cap tech plays on the NASDAQ to M&A to Israeli VC, to have a very strong 2nd half of ‘09, and lights out for 2010.

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It looks like the trend for Israeli investors to park their money in short-term bank deposits, has slowed. According to an article in Globes: “The Bank of Israel reported that assets held in banking accounts fell by 4.7% and deposits and in particular short term deposits, which plunged by NIS 11 billion. In contrast there was a 6% increase in investments by Israelis in TASE-listed stocks (NIS 230 billion in January 2009 compared with NIS 227 billion in December 2008) and on overseas stock exchanges (NIS 210 billion in January 2009 compared with NIS 198 billion in December 2008). There was also an increase of NIS 13 billion (5.7%) over this period in the index-linked tradable bonds held by Israelis.”

Part of this also has to do with the outperformance of the local Tel-Aviv Stock Exchange with a positive performance this year.

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While some hesitate about investing in Israel, Matthew Bronfman has no hesitation. He has announced that he bought the last 15% stake in Ikea Israel for about $160 million.

The store has been a favorite for Israeli’s, and the chain has been expanding in Israel.

According to Globes: “The main reason why Bronfman exercised the option to buy out his partners is the planned expansion of IKEA Israel. The company value for the deal is based on the IKEA Israel store in Netanya and the brand’s potential in Israel. The construction of a second store in Rishon LeZion is stuck in legal battles over the building permit for the site at Me’uyan Soreq. IKEA also plans to open a third store in the Galilee within three years.”

This looks like it will turn out to be a very good investment.

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Citing risks in Israel, IDB head Nochi Dankner is looking to invest large amounts of money outside of Israel. According to Globes: “Dankner said, “IDB wants to acquire more overseas companies. We are investigating additional deals and not only in the financial sector. I am certain that IDB will continue to expand its global portfolio.” He continued, “There are risks in Israel, and therefore it is only logical that a group like IDB would want to undertake activities outside of the country.”

While many would say that this is a bad sign for the Israeli economy,  I think that there are some good things that can come out of this. If Dankner starts to focus investing away from Israel, this may just open up Israeli investments to some unfamiliar faces. It’s well known that about 10 local families control a huge segment of the Israeli economy. For the health of the economy it would be great to see some new, fresh faces, take the investment reigns of the Israeli economy.

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