Israeli Market Experts Discuss Investment Strategies Amidst Global Uncertainty

Israeli finance professionals convened at the "Next Generation Investors" conference in Tel Aviv, hosted by Globes in collaboration with The Phoenix, Bank Leumi, and Strauss. The panel, held at the Tel Aviv Stock Exchange, focused on navigating investment choices between Wall Street and the Tel Aviv Stock Exchange, and between indices and specific stocks.

Experts noted rising return expectations, with a survey at the conference indicating investors anticipate over 12% annual returns. Riki Bash, Head of Investment Consulting at Bank Leumi, expressed surprise at this figure, attributing it to recent years of strong market performance. She cautioned that achieving such returns typically requires a stock-heavy portfolio, while a balanced portfolio might yield around 7% annually. Bash also highlighted the significant risks accompanying high return expectations, warning of potential sharp market volatility.

Efrat Kimelman, an analyst and innovation lecturer, adopted a more speculative stance, advising that new investors might misinterpret market downturns. She noted that significant declines can last for years and suggested that exposure to innovation sectors is possible through indices and ETFs. Rinat Ashkenazi, Chief Economist at The Phoenix Investments, identified inflation and interest rates as key market drivers, alongside the impact of artificial intelligence (AI). She explained that geopolitical events and energy prices influence inflation, which in turn affects interest rates and bond yields. Ashkenazi pointed out that while high interest rates are linked to a relatively strong economy, large government deficits post-pandemic are increasing borrowing costs for nations.

Ashkenazi attributed continued stock market highs, despite rising yields, to substantial AI infrastructure investments. She noted that AI's long-term potential to boost productivity could moderate inflation. However, she warned that persistently rising yields might question the viability of AI investments. Bash added that the AI investment boom is fueling the market, despite geopolitical risks and potential interest rate hikes. Kimelman discussed the impact of supply constraints on inflation, suggesting interest rate hikes may not be a complete solution. Ashkenazi elaborated on the broad AI exposure within the S&P 500, estimating that 41 of its 500 companies are directly linked to the AI revolution, representing about 50% of the index's market value, with exposure extending to infrastructure and industry sectors globally.

Regarding specific investment areas, Kimelman recommended examining AI products, company revenues, and stock valuations, distinguishing between genuine growth companies and speculative bubbles. She highlighted the photonics industry, which uses light for data transmission, as an area with emerging real-world applications beyond initial hype. Cybersecurity was also identified as a growth area due to increased security needs driven by autonomous AI agents. Bash described the current economic environment as favorable for stock investments in both Israel and the US, citing global growth and strong corporate profits, but also noted risks from rising bond yields and geopolitical uncertainty. She indicated a slight preference for US equities based on valuation, while Ashkenazi suggested diversification between the US and Israeli markets, acknowledging risks in both, including potential impacts from Israeli elections.

Ashkenazi advised investors to focus on long-term yields rather than short-term interest rate decisions and to approach investments analytically rather than emotionally. She stressed the importance of patience for young investors, warning against impulsive decisions and the dangers of online investment scams and unqualified "gurus." As a potential "black swan" event, Ashkenazi cited a debt crisis, particularly concerning for countries like Israel with significant deficits, and warned of the consequences of excessive government spending and leverage.