There’s a common adage in investing: “When the cannons roar, you can hear the soft jingle of opportunity.”
The ongoing conflict in Israel, amplified by the recent attacks from Hamas, has certainly caused more than just political unrest.
As the dust of the war grounds begins to settle, there lies beneath it an economic terrain altered in more ways than one could have imagined.
When the Bank of Israel flags a downward revision in its macroeconomic forecast, citing “particularly high uncertainty,” market watchers everywhere, including yours truly, tend to sit up and take notice.
But as we, the Investing Pioneers, always assert – where there’s uncertainty, there’s potential.
The central bank’s forecast of a GDP growth of 2.3% in 2023 and 2.8% in 2024, a dip from the initially projected 3.0% for both years, does indeed reflect the economic strain caused by the conflict.
But let’s delve a little deeper.
The TA-35 Index – a bellwether of the Israeli market – has shed 9%, and the shekel’s depreciation against the US dollar is at an 8 1/2-year low.
These indicators, compounded by the looming threat of a credit rating downgrade from the likes of Fitch and Moody’s, paint a somber picture.
But, if you’ve been in the investment game as long as I have, you’d know that these metrics often herald short-term reactions rather than long-term patterns.
Opportunities Amidst Crisis
While businesses have undoubtedly taken a hit – exemplified by the dramatic drop in production at the local brewery – this also represents an investment opportunity.
As stock prices fall and valuations become attractive, the proverbial “buy low” strategy might just come into play.
- Currency Play: The shekel’s recent dip against the dollar could be a strategic entry point for forex investors. As the Bank of Israel aims to stabilize the markets, there’s a potential upside to be considered in the medium to long term.
- Rate-Watch: The central bank’s stance on the short-term borrowing rate, currently at 4.75%, offers cues for bond traders. A potential dip to the 4% to 4.25% range over the next year, as indicated by the bank, could present lucrative plays for those who understand interest rate dynamics.
- Tourism Rebound: Yes, tourism has been hit hard. But history teaches us that once conflict subsides, there’s an eventual influx of tourists, and businesses, buoyed by pent-up demand, could see a rapid turnaround.
- Diversify Geographically: For those wary of putting all their eggs in the Israeli basket, consider diversifying. Look for resilient markets, perhaps even those indirectly influenced by the Middle Eastern economy.
Remember, economies are resilient, more so than they often get credit for.
As Morgan Stanley analysts have opined, the situation remains fluid.
While it’s essential to approach with caution, the intersection of geopolitics and economics often presents the savvy investor with unique opportunities.
Keep those analytical glasses on, my fellow pioneers, and let’s navigate these challenging times with the wisdom and foresight that has always set us apart.
Till next time, invest wisely and stay pioneering.
Peter Burke
