‘Israelis transfer money abroad at an unprecedented rate’
“Israeli funds are being taken out of banks and transferred abroad at an unprecedented rate.” “Israel could end up in a bad place.” “This could lead to devastation.” These were among the warnings sounded by Israeli investors and financial experts at a conference last week on the financial ramifications of the government’s judicial overhaul plans.
Indeed, this is an interesting and challenging time on both the political and economic fronts in Israel. Speakers Ori Keren, chief investment officer at More Investment House, and Gilad Altshuler, CEO and co-owner of the Altshuler Shaham investment firm, both offered dark predictions should the overhaul proposals, parts of which will be voted on this week, be enacted.
In the absence, for now, of a compromise between supporters and opponents of the legislation, Keren said, “we have been seeing a deterioration here, mainly among local residents. We’re seeing Israelis’ funds being taking out of the banks and transferred abroad, at an unprecedented rate. Even clients who have saved 3-4 million shekels [$844,000 to $1,100,00] are lining up for meetings with their banks and saying that they want to transfer half of their money abroad.
“People who would never before have thought of opening an account in HSBC [an international bank with local branches] are doing so at a rate we’ve never seen here before.”
This situation, Keren added, reflects “a steadily growing trend. There is definitely a crisis of trust here, and even if a compromise happens, it will still leave scars. Some of the money will come back, but not necessarily all of it. Banks abroad that are absorbing the money from here are also passing the information about this trend onward, and this has an effect. The desire to take funds out of Israel doesn’t just stem from risk diversification – but is it rational? I’m not sure.”
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For his part, Altshuler said, “I don’t think that in the short term all of the moves the government is making have a significant impact. But in the long term, it could lead to real divisiveness in the nation. The act of removing funds from Israel is primarily a punitive one. Eighty percent of the population feels sure that a reform is needed, but 80 percent are also certain that it shouldn’t be done the way it is happening now. This [situation] could lead to devastation.
“This is also clear to the person who is spearheading these things,” he added, “and he is afraid. We mustn’t reach a situation where there are two peoples, and therefore I believe that there will be a compromise.”
Altshuler and Keren were speaking at an event held in Glilot, outside Tel Aviv, sponsored by the Athena insurance agency, which is managed by Yaron Shamir and Meital Benvenisti. Other participants on the panel included Haggai Schreiber, chief investment officer and executive VP of Phoenix Holdings Ltd., and Barak Benski, senior VP and investments manager at Clal Insurance.
Capital market pressure
Most of the participants felt that ultimately, the negative mood in the capital market will help force a compromise on the far-reaching “reform” being pushed by Justice Minister Yariv Levin and Knesset Constitution, Law and Justice Committee chairman Simcha Rothman – a move that could lead to regime change. The speakers seemed to agree that banking clients’ moves to diversify their risks largely reflects a psychological situation and the desire to take punitive steps due to changes the government is trying to impose on the country.
“Our working assumption, speaking as investment managers and not just as citizens,” Keren, of More investments, explained, “is that ultimately the judicial plan will end up with a compromise. Not necessarily because that is the government’s desire, but due to the pressure from the capital market which is of great concern to our decision-makers.”
Also on Wednesday last week, Finance Minister Bezalel Smotrich held a meeting with local bank directors in which the latter, led by Israel Discount Bank CEO Uri Levin, expressed concern about the economic implications of the government’s moves and their clients’ growing desire to open accounts in foreign banks. A few weeks earlier, Prime Minister Benjamin Netanyahu had held a similar meeting with the bank directors and other figures from the business sector.
In this context, when Keren was asked where things generally stand with the investment bodies that manage trillions of shekels of the Israeli public’s money, he replied, “There will be a meeting between policy-makers and the institutional [investment] bodies too. Presuming that this happens, and we reach a compromise, the market is strong and the Israeli economy is in excellent shape.”
Schreiber, of Phoenix, struck a reassuring tone: “Although the media has really been highlighting the removal of funds and dollars from Israel, so far the numbers do not show a flight of foreign investors from here. On the margins, we can see that it might become harder to bring in money from abroad, from Silicon Valley and other places. But what we are seeing meanwhile is local people thinking that they’ll get ahead of the looming trend, and are transferring funds from mutual funds and local exchange-traded notes abroad – but the institutional bodies are not part of this.
“Each month, 15 to 20 billion shekels are flowing into the institutional funds, with 60 to 70 percent of these sums going to investments abroad, because the Israeli market isn’t big enough. So I don’t see any mass panic at this point.”
As to what is currently happening in the markets, Keren said, they are “predicting a not-very-realistic scenario – that inflation will go down and the stock market will rise. You can buy bonds that are traded at attractive yields and not very long durations. The yields of bonds of good, strong companies – like Coca-Cola, McDonald’s, Walmart and the like – currently hold potential for a higher profit than investment in the stocks of these companies. In the stock market, we are more cautious at the moment. It definitely pays to invest in bonds. We also focusing on alternative, non-tradeable investments.”
“The capital market,” he added, “is re-pricing itself. Irrespective of everything else going on, there should be consideration of raising Israel’s rating. But there are things that are starting to look a little gloomier. The atmosphere has a gradual effect. The problem is that things can move very quickly from a gradual to a rapid effect.”
Real estate situation: ‘not brilliant’
Investment possibilities abroad, Altshuler said, “are quite varied. A majority of [Israeli] investments are aimed at the American market, as well as Europe and Japan, but mainly the American market, where the big companies are and where there is a very transparent market. Here in Israel there are a lot of analysts who have never seen inflation and some with a short memory, but I also remember years, like 1995-2000, when apartment prices fell and people couldn’t sell their homes for a year.
“I’m not saying that this is what’s going to happen, but such things can definitely happen. In certain areas, prices are already dropping. It’s not that the real estate market is collapsing, but it’s certainly not performing brilliantly and this is happening now because there are alternatives that didn’t exist a year or a year and a half ago, in terms of stocks and also bonds with very nice yields, which before was not an option for investors.”
Benski, of Clal: “We should recall the British precedent. If things go in a bad direction internationally, Israel could end up in a bad place. Let’s recall that most of the money is ‘fenced off.’ If that is lifted just a little, it could turn into vast sums. In Israel we’re managing a stock portfolio of tens of billions of shekels; it’s not relevant to talk about reducing it to 20 billion shekels. We believe in the Israeli market and following a policy of long-term investments.
“A week ago, I was at a presentation by a strategist from abroad whom we really believe in, and he said something that I really identify with: ‘If you’re not confused, you are apparently not studying the figures in enough depth.’ We have two scenarios today, but we’re not certain of either one of them, and don’t quite believe in the optimistic direction that [the world] market is seemingly going in.”
Schreiber also addressed the emerging deal, according to which an Abu Dhabi fund is expected to acquire Phoenix: “I was in Abu Dhabi three weeks ago as part of the due diligence process, and I met with some very impressive and very nice people there. The due diligence process is supposed to be concluded within a few weeks, and then the decision will shift to the political arena. My personal view is that those involved won’t prohibit the buyers from acquiring Phoenix. The regulators and relevant officials may present the buyers with different demands and restrictions, such as that the investment committees be made up of Israelis, and other things – and then the buyers will have to express their position.”
In any event, Schreiber added, “I can say that they know very well that there can be no intervening in what is done with the members’ funds. It works the same way today with our American investors and I haven’t gotten any feeling that this will change. If we – myself and the Phoenix CEO – thought things would change, we wouldn’t remain in this process.”