Israelis' Savings More Exposed to Stocks Than Ever Amid Market Volatility
Translated & summarized from Globes by baba
Israeli savings are now more exposed to the stock market than ever before, with stock allocation in pension funds doubling over the past 15 years. Recent market volatility has raised questions about whether this increased risk is justified, especially as global economic factors create uncertainty. While some experts warn of an "illusion of security" and increased risk for savers, others argue that long-term investment horizons make short-term fluctuations less significant and that rising bond yields can sometimes signal corporate growth. Investors are advised to consider less hyped sectors and value stocks for potential stability.
The story in 6 lines · by baba
- Israeli savings are now over 52% exposed to stocks, more than double the level from 15 years ago.
- Recent market drops and global economic concerns have revived questions about stock investment risk.
- Some experts warn savers are unaware of the increased risk in their pension funds.
- Others argue long-term investors should remain in stocks despite short-term volatility.
- Rising bond yields may signal corporate growth opportunities, potentially benefiting stocks.
- Short-term investors are advised to explore less hyped sectors and value stocks.
Recent drops in Wall Street, including a 2% decline in the S&P 500 and a 4% fall in the Nasdaq last week, have reignited concerns about the stock market's stability. With global factors like AI's impact, debt levels, inflation, interest rates, and geopolitical tensions converging, the question of whether higher stock returns justify the increased risk is resurfacing.
For Israelis, this question is particularly pertinent as their savings are now more exposed to the stock market than at any point in recent history. Data from the Capital Markets Authority's Gemel-Net website reveals a dramatic shift: exposure to stocks in general pension and study funds rose from approximately 24% in 2010 to over 52% today. Similarly, in pension tracks for those aged 50 and under, this figure jumped from 42% in 2016 to 58% currently. This doubling of stock exposure over about 15 years occurred alongside a decrease in bond holdings, which are considered lower risk.
While this increased stock allocation has historically yielded significant returns, outperforming bonds substantially since 2008, a senior market source warns of a "created illusion of security" that has fundamentally altered the risk profile of pension funds. This individual notes that many savers are unaware of the dramatic shift and the increased risk involved, as public discourse has focused on returns rather than risk levels.
Despite rising bond yields globally, institutional investors are not reducing their stock exposure, driven by competition for returns. Eyal Shina, Deputy CEO of Investments at Pasternak Shacham, however, advises against overreacting to recent market dips, arguing that the long investment horizons of pension funds make short-term volatility less critical. He suggests that staying invested through downturns, as demonstrated during the COVID-19 pandemic, is often the best strategy for long-term investors.
Amir Kahanovitch, Chief Economist at Profit Group, views rising bond yields not necessarily as a warning sign for stocks. He differentiates between yield increases due to inflation or risk premiums, which are detrimental, and those driven by strong demand for capital from expanding companies, which can be a positive indicator for the stock market. He suggests that current market conditions, with companies actively seeking capital for growth, could support stock market gains, dismissing concerns about US debt as background noise.
For short-term investors, Shina recommends looking beyond AI-hyped sectors to less attractive areas like the TA-90 index or retail companies, and to consider value stocks and REITs. These sectors, he argues, are more attractively priced and may perform better in a market downturn.
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