"The good mood in the world should support the shekel in the short term. Later, the shekel exchange rate should be supported by capital inflows and the start of natural gas production in Israel. However, higher local geopolitical risk could temporarily weaken the shekel," says Bank Leumi in its weekly survey.
"We believe that, in the short term, trading in the Tel Aviv Stock Exchange (TASE) will be influenced by foreign developments, especially over the US fiscal and monetary policy. On the domestic front, it cannot be ruled out that when the budget for the rest of the year is approved, it will include cuts that are liable to strongly affect the capital market," says the bank.
Bank Leumi says that the standard deviation in Tel Aviv 25 Index contracts are relatively low, making it possible to hedge investment portfolios at a low price.
The bank says that, in the energy sector, inelastic demand for natural gas and the high probability that demand will grow in the coming years and that exports will become more worthwhile support investment in the industry at this time and at above the sector's weight.
Bank Leumi advises that, in view of the yields at the low end of the curve on bonds and the high risk of long-term bonds, increasing investment in medium-term government bonds. "Since current capital market inflation expectations are the same as forecasters' expectations, we continue to advise keeping a balanced mix of unlinked shekel and CPI-linked bonds, in view of uncertainty about the inflation rate in the medium term," it says.
The bank adds that, in view of the low yields on corporate bonds, it is important to choosing bonds with yield expectation which fit the risk with a focus on companies with cash flows and short-term bonds of up to three years' maturity.
Published by Globes [online], Israel business news - www.globes-online.com - on February 24, 2013
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