Investment Manager Advises Caution on Israeli Real Estate Sector
Shi Benishu, Head of Nostro Investments at Migdal Insurance and Finance, maintains an optimistic outlook on the Israeli economy and stock market, despite recent volatility. He accurately predicted in late 2024 that the Tel Aviv Stock Exchange would outperform global markets, with the TA-125 index surging approximately 70% compared to the S&P 500's 33% rise. Benishu's sector recommendations also proved successful, with insurance stocks jumping around 250% and renewable energy stocks, including Enlight Energy and Doral Energy, seeing significant gains of approximately 273% and 413% respectively. However, his earlier positive outlook on real estate stocks yielded less impressive results, with a mere 17% increase.
Currently, Benishu sees the Israeli market at an "interesting point." While the TA-125 index has risen 11% year-to-date, this includes a 10% correction. He believes that increased certainty regarding elections, regardless of the outcome, could lead to a further upward movement in the local market, while political uncertainty might result in continued stagnation. He identifies software companies and the housing market as key risks within Israel. Software firms, though impacted by the AI revolution, are expected to adapt due to Israeli ingenuity. The housing market, however, is facing difficulties, with actual prices down over 10% plus contractor discounts. Benishu suggests that further interest rate cuts by the Bank of Israel and a resolution to the current geopolitical uncertainties will be crucial for revitalizing the housing sector.
On Wall Street, Benishu notes that the primary focus is on government bond yields, which are elevated due to factors including Japanese investors selling U.S. debt, rising inflation, a substantial U.S. deficit, and policy uncertainty from the new Federal Reserve chair. Despite this, the U.S. stock market continues to show remarkable strength, driven by robust corporate earnings growth, particularly in the tech sector. Benishu advises investors to maintain exposure to both U.S. equities and high-yield U.S. government bonds.
Benishu recommends a long-term investment horizon of at least five to seven years, with a portfolio tilted towards the Israeli shekel, anticipating its continued strengthening against the dollar. For a conservative investor, he suggests allocating 20% to Israeli stocks (TA-125), 10% to U.S. stocks (S&P 500, Nasdaq), 35% to Israeli government bonds, 30% to Israeli corporate bonds (Tel Bond 60), and 5% to U.S. government bonds. For aggressive investors, he recommends 35% in Israeli stocks, 15% in U.S. stocks, 25% in Israeli government bonds with a longer duration, 15% in Israeli corporate bonds, and 10% in U.S. government bonds. He also suggests considering ETFs for semiconductors and AI for investors seeking higher risk. Benishu reiterates his caution regarding income-generating real estate, particularly office properties, until the full impact of AI on the office market and employment is understood.
