US investment house Morgan Stanley has released a glowing review of the Israeli economy, entitled "Israel: Almost Perfect".
"Israel’s new government is good news for the economy and financial markets. The formation of a ‘grand’ coalition with a reasonable majority 67 of the 120 seats in the Knesset is a positive development that will help maintaining economic stability and pursuing further withdrawals from the Palestinian territories," Morgan Stanley's reports says.
"Though there might be some increase in ‘social’ spending, the new government is likely to remain broadly committed to fiscal prudence and structural reforms that have already lowered real interest rates and set the stage for strong economic growth in Israel," it continues.
"The leading indicators point towards a strong growth momentum this year. Real GDP increased by 4.3% in 2004 and 5.2% last year well above the dismal performance in the previous years and the latest set of indicators confirms the continuation of above-trend expansion in domestic economic activity as well as in exports.
"The Israeli economy, growing at an above-trend pace, is running out of spare capacity… However, we do not expect an inflationary spiral, since the central bank has enough ammunition and the state of public finances remains supportive of price stability…given the pace of growth in domestic demand and the low level of real interest rates, the ‘normalisation’ of monetary conditions requires tightening of the policy rate beyond the point of neutrality to about 5.75% in the coming months. This is, in our view, good news, not a threat, and would support shekel-denominated instruments."
A less enthusiastic view is taken by Citigroup, which rates Israel "Underweight" in a review of emerging markets in Central Europe, the Middle East and Africa published on May 5. Citigroup describes the Israeli market as "relatively unexciting". "Although the outlook for Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA) is brightening somewhat, we still see prospects for the overall market as limited," Citigroup's report says.
Citigroup rgives Teva a "Buy" recommendation, with a $51 target price.
Other Israeli stocks rated "Buy" are Bank Hapoalim (LSE: BKHD; TASE: POLI), Bank Leumi (TASE: LUMI), and Israel Chemicals (TASE: CHIM), Amdocs (NYSE: DOX), Radware (Nasdaq: RDWR; TASE: RDWR), M-Systems Flash Disk Pioneers (Nasdaq: FLSH). AudioCodes (Nasdaq: AUDC; TASE: AUDC) merits a "Hold" recommendation from Citigroup.
Published by Globes [online], Israel business news - www.globes.co.il - on May 7, 2006
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