The Standard & Poors (S&P) credit rating agency upgraded its credit rating for Israel from A+ to AA- (stable outlook), ushering Israel into an exclusive group of 15 nations that hold the prestigious AA ratings (AA+, AA and AA-). The upgrade was announced on Friday, August 3^rd after S&P changed its outlook for Israel’s economy from “stable” to “positive” approximately one year ago.

This upgrade represents the highest-ever credit rating given to Israel by S&P or any other credit rating agency in the history of the nation and comes one month after Moody’s credit rating agency also raised its outlook for Israel from “stable” to “positive” in July 2018, indicating an upgrade in their rating from A1 to Aa- in the coming 12-18 months.

S&P explained its decision by stating that “Israel has demonstrated sound economic performance since the global financial crisis, with a current GDP of about $140 billion (or 50%) larger than in 2010, the current account in a sustainable surplus, and unemployment at historical lows,”.

They also added that despite Israel’s political situation being “highly fragmented” and the public debt remaining relatively high, “we now think that fiscal slippages leading to a significant reversal of the debt path are unlikely. This is based on our belief that, absent global trade shocks, Israel’s economic growth outlook will remain solid and allow the government to accommodate pressures coming from social and infrastructure spending, as well as a potential moderate escalation of security risks”.

Prime Minister Benjamin Netanyahu praised the upgrade, stating: “These decisions reflect the strength of the Israeli economy and the correct and responsible economic policy that we are leading on behalf of Israel’s citizens”.

After being at the helm of Israel’s economy since 2015, Finance Minister Moshe Kahlon also expressed his satisfaction from the S&P upgrade. "In the past three years, the Israeli economy has soared to the best macro data in its history. The confidence expressed by the strongest economic bodies in the world allows us to continue to grow the economy and to help reduce social gaps and strengthen the middle class and weaker sectors. The increased rating of AA- will save us billions of shekels in financing expenses, which we will redirect to the health, education and welfare ministries.” He said, optimistically adding "Although now it is double-A minus, this minus will disappear in a year".

Moody’s stated two main reasons for its outlook upgrade last month, one being recent positive trends in Israel’s government debt and the second Israel’s robust economy.
"The general government debt ratio has declined by more than 10 percentage points since the last upward move in Israel's credit rating in 2008 to around 60% of GDP, reflecting in part a prudent budgetary framework and a robust growth performance. This contrasts sharply against trends in many other advanced country peers both before and after the global financial crisis. For example, Israel is one of only a handful of advanced economies (including Norway, Switzerland and Singapore, which are all rated Aaa with a stable outlook) with a lower debt to GDP ratio today than before the global financial crisis. Furthermore, central government deficits have remained below 3% of GDP over the past 4 years, despite repeated upward revisions of the government's own deficit targets."

"The second driver of the decision to assign a positive outlook is Israel's increasingly resilient economy, supported by the dynamism of the high tech sector, increased energy independence and a strengthening external position, which, if sustained, will continue to support more favourable growth rates than similarly rated peers,".

Finance Minister Kahlon reacted to Moody’s outlook upgrade, stating “The rating outlook upgrade is further evidence of the strength and stability of the Israeli economy. All the data indicate that the economic policy that we are pursuing, including a free and responsible economy alongside strengthening the middle class and poorer sections of society, is the right way”.

Credit rating agencies base their ratings on the governments ability to repay its debts, but also heavily consider geo-political, macroeconomic and other strategic factors pertinent to each country, often comparing between peer countries. The ratings given by S&P, Moody’s and Fitch are the most prominent indicator of a country’s economic situation and are used to evaluate investment opportunities of many types. A higher credit rating expresses confidence in Israel’s economic policies and its future, and will allow the government to finance at lower costs.

Because of the credit rating upgrade, Israel’s capital market reacted positively with significant gains on Sunday, August 5^th, seeing the largest indexes, Tel-Aviv 35 and Tel-Aviv 125, rising 1.69% and 1.55% respectively by the end of trading. This is the highest level the market has been at in almost three years. The Shekel also strengthened 0.5% against both the USD and the Euro due to the upgrade.

Looking ahead, S&P analysts predict an average year over year GDP growth of 3.3% between 2018 and 2021, resulting from private consumption, corporate investments and strong performance in the high-tech and fields of service exports.

Sources:

Wise Money Israel, The Times of Israel, Calcalist, Globes, Jerusalem Post, Ynet

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However, don’t let appearances deceive you. Despite the lack of the physical presence on the map, Israel is considered a giant in the high-tech sector. It has the highest concentration of startups in the world after Silicon Valley. Household names such as Mobileye, the Waze navigation app, Cloud-based web development platform Wix and many others have their origins in Israel. Not surprisingly, for decades the country has maintained its reputation of an entrepreneurial hub for the high-tech industry.

Albeit, High-tech is not the only industry attracting companies and investors to Israel. Unknown to many, more than 270 multinational corporations have established over 320 advanced R&D facilities throughout the Jewish State, essentially making this small country a key part for their success. Some of the world’s leading technology enterprises such as Facebook, Siemens, Apple, Microsoft, Google, Intel, IBM, Yahoo!, HP, Motorola, GE, GM, Cisco and many more have made their presence felt in Israel. These multinationals do not just boost the local economy, they employ roughly half of country's hi-tech workforce.

The actual number of American multinationals who have representation in Israel exceeds 200. So, what are the main reasons that US high-tech companies, and an increasing number of others, choose to invest heavily in this Middle-Eastern country.

1. People. Israelis are famous for their "hutzpah". They are not shy to challenge their superiors and their never-take-no-for-an-answer attitude is almost a norm. Combined with innovation and creativity, Israel’s workforce is a key reason why so many multinationals are so eager to be here. It is, therefore, not surprising that Israel has the highest concentration of engineers and PhD’s per capita in the world.
2. Innovation. Surrounded by hostile nations, Israel had no choice but to become inventive on all fronts of life. They say that “necessity is the mother of invention”, and in line with that, Israel has become a global powerhouse for new technologies and innovation. Israeli achievements in Fin-tech, military, health and medicine, internet, cyber security and other fields are renown around the globe.
3. Startups. Innovation and a highly educated workforce foster a fertile ground for startups. This has become a doorway for many leading technological companies to establish beachheads on Israeli soil. Through acquisition of local startups, some large companies have already turned them into innovation centers while others are merged in order to fortify already existing research and development departments. Ever since establishing their presence in Israel over forty years ago, IBM has purchased more than a dozen local companies. According to the latest figures Israeli startups raised $1.52 billion in 181 deals in the first quarter of 2018, compared with $1.46 billion in 161 deals in the preceding quarter and $1.06 billion in 155 deals in the first quarter of 2017 as reported by Globes survey of the IVC- Zysman, Aharoni, Gayer & Co. law firm (ZAG).
4. Cutting-Edge Manufacturing. Due to its success in high-tech, Israel has some of the most advanced manufacturing facilities in the world. It is one of the leaders in the automotive technology industry. Israel has over 250 innovative aftermarket suppliers whose products range from spare parts to accessories. In agricultural technology, more than 25 companies manufacture seeds and develop innovative solutions, including irrigation. Over 3 million acres of farmland in the United States use agricultural equipment and methods produced by the Israeli agri-tech firm Netafim, which was also recently acquired by Mexichem for $1.5billion. Another good example is Intel, which has been operating in Israel for the last four decades and is currently the largest tech employer in the country, with six locations across the nation employing a workforce exceeding 10,000. We cannot leave out pharmaceutical giant Teva who continues to lead as the world's largest generic drug manufacturer.
5. Stable Economy. During the last global economic crisis, Israel's economy managed to avoid recession. It has seen consecutive years of rising international credit rankings from all three major credit ranking organizations and its GDP growth, which at times beat even those of the OECD nations and the U.S.
   The latest drop in unemployment rate continues to underline resilient economic growth and despite geopolitical instability in the region, the Israeli economy has been recognized as one of the most stable in the world.

The above are not the only factors behind Israel’s admirable achievements in multiple disciplines and industries, but they certainly make a compelling case for the world’s technological heavyweights to establish their presence in this small country.

Not only large companies can invest in Israel, but now through the Israeli capital market so can individuals, IRA holders, non-profit organizations and small, medium and large businesses and partnerships. Israeli is a compelling case for investing for the large firms and the sole investor alike.

The post A Compelling Case for Israel appeared first on Wise Money Israel.

Ever since ancient times, Israeli culture has valued education as a primary pillar in the establishment of the nation. The Babylonian Talmud, compiled in the 4^th century CE states, “The very world rests on the breath of a child in the schoolhouse” (Shabbat Tractate, 119b), exemplifying the importance of study and education to the Jewish people thousands of years ago already. Even during the centuries spent in the diaspora, Jewish people excelled and distinguished themselves in education and academia despite frequent hardships and limitations placed on them due to antisemitism and discrimination.

Maintaining this tradition, modern day Israel has a comprehensive and robust educational system, ranging from primary schools to leading higher education institutions that offer undergraduate, graduate and post graduate students multidisciplinary study programs and often supply the world with breakthrough research in science, medicine and technology. Israel’s educational system is considered innovative in and of itself, as can be seen in a recent OECD “Innovation in Education” study that ranked Israel 8^th overall in this category in the OECD between 2000-2011.

Israeli universities rank among the top 100 universities in the world in science and engineering subjects such as mathematics, physics, chemistry, computer science, engineering and life sciences. Israel ranks 2^nd in the OECD nations for the percentage of 25-64 year-olds that have higher education diplomas (undergraduate and above), standing at approximately 45% and is a global leader in the number of scientific articles published per capita. Israel also boasts the largest concentration of engineers in the world with 140 scientists and technicians and 135 engineers per 10,000 employees. In comparison, the U.S.A. has a ratio of 85 engineers per 10,000 employees while Japan’s ratio shows 83 engineers per 10,000 employees.

Furthermore, it is intriguing to note the disproportionate percentage of Noble prize laureates who are of Jewish descent in comparison to the percentage of the Jewish people in the world’s population. Jewish people make up approximately 0.2% of the world’s total population, however one in every five Noble prize laureates is of Jewish descent (20%). Whether laureates were awarded their prize before the state of Israel came into existence in 1948 or after, these figures still point to the importance of education in innovation and it’s clear that the Jewish people as a whole have a much larger innovative footprint than should be expected of them based on their percentage of world population. Equally interesting is the breakdown of each of the six Noble prize categories: Jewish laureates in the categories of Economics, Medicine, Physics, Chemistry, Literature and Peace make up 41%, 28%, 26%, 19%, 13% and 9% of all laureates respectively.

Higher education is known to play a pivotal role in the economic and social development of a country, thus Israel’s educational tradition has greatly contributed to its economic advancement.
Given the strong tradition of education that Israel holds, along with the educational innovation and ingenuity that are part of the system, it is not surprising that Israel spends a higher percentage of its GDP on research and development than any other nation in the world and has one of the highest rates in the world for patents filed. The end result is a robust, highly educated and innovative Israeli workforce that fills the ranks of both local and international companies that are on the cutting edge to develop breakthrough technologies in a wide spectrum of industries.

There is no doubt that Israel’s education has been a considerable factor in the success of the nation’s economy and has allowed it to grow from a desert swampland to a leading and fully developed nation with a booming and resilient economy. As Israel continues to invest resources into its education it will reap the benefits for many years to comes, as will the rest of the world.

Stefan Silver serves as the Director of Business Development & Operations at Wise Money Israel (WMI), the first licensed Investment Portfolio Management firm in Israel that works completely in English to serve local and international clients. WMI works with hundreds of individuals and organizations from around the globe to invest in Israel’s leading companies and technologies through Israel’s capital market – the Tel Aviv Stock Exchange (TASE).

Stefan holds a B.A.in Economics and Management, and an MBA from Haifa University. Born in Auckland, New Zealand, Stefan immigrated to Israel in 1992 and served for four years in the IDF’s Combat Engineering Corp, including combat experience on the front lines of the Second Lebanon war. He is currently a Captain in the IDF Reserves.

LinkedIn: Stefan Silver

Sources:
State of Israel – MFA, State of Israel – MOF (investinisrael.org), OECD.org, Wikipedia, Jerusalem Post

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Israel’s credit rating has risen consistently over the past 15 years in all three agencies, moving over time from A2 in the year 2000 to A1 (Stable) in 2008 with Moody’s and retaining that rating since, from A- in 2007 to A+ in 2011 with S&P, and Fitch increasing Israel’s ranking from A- (negative) in 2001 to A+ (Stable) this month.

The credit rating of a nation has a big impact on the country's borrowing costs, essentially how it can raise capital both from other sovereign nations and also from investors, whether institutions or individuals. The credit rating indicates the risk level associated with the nation’s investing environment, taking into account various factors including the economic, political and social climates. The credit rating also effects the strength of the local currency in relation to foreign currencies.

There are several main factors that led Fitch to issue their recent upgrade of Israel’s credit rating. These factors have been consistently strengthening over recent years and are positively impacting Israel’s economic forecast for the coming years:

1. Israel’s strengthening external balance sheet
   Fitch first pointed out Israel’s increasingly positive Current Account balance. The current account is an important indicator about an economy's health. It is defined as the sum of the balance of trade (goods and services exports less imports), net income from abroad and net current transfers. In other words, it indicates if there is more foreign currency flowing in from export and aid or going out from import and payments. Israel has returned annual Current Account surpluses each year since 2003, breaking a record in 2015 with 4.6% of GDP.

2. Israel’s continually decreasing Government Debt to GDP ratio
   Since the mid-late 90’s, Israel’s debt to Gross Domestic Product (GDP) ratio has been steadily decreasing. Despite a periodic rise in the early 2000’s, the ratio has decreased to a favourably low percentage reaching a record low of 64.8% in 2015, revealing how Israel’s economy is producing more services and goods sufficient enough to pay back its debts without incurring more. In comparison the U.S. Government Debt to GDP ratio that has grown rapidly since 2007, eventually reaching over 104% in 2015.

Israel’s GDP average for 2011-2015 has slowed to 3.1% from 4.5% during 2004-2011 resulting from a number of factors, including the slow global economy that Israel is highly dependent upon. By comparison, U.S. average GDP during 2011-2015 was only 1.9%. Looking ahead, In June 2016 the Bank of Israel presented its forecast for the remainder of 2016 and into 2017. The research department forecasts that Israel’s GDP is projected to increase by 2.4 percent in 2016 and by 2.9 percent in 2017. For comparison sake, the projected growth of GDP in the U.S. will be 2.4% in another 12 months and around 2.1% around 2020. Israel’s rate of inflation over the next year (ending in the second quarter of 2017) is expected to be 1.0 percent. The Bank of Israel interest rate is expected to remain at its current level of 0.1 percent during the coming year, and to begin rising at the end of 2017.

Fitch also noted that “Israel benefits from high financing flexibility. It has deep and liquid local markets, good access to international capital markets, an active diaspora bond programme, and US government guarantees in the event of market disruption”.

3. Israel’s natural gas sector discoveries and development
   Israel’s recent natural gas discoveries and development off the Mediterranean coastline have propelled Israel into a regional and perhaps even global energy player. These natural gas fields are further positively influencing the Current Account balance by heavily reducing the need to import natural gas, one of the main energy sources used to fuel Israel’s power stations. Instead, Israel is already consuming its own natural gas flowing through underwater pipelines from the Tamar gas field directly into the stations. Furthermore, Israel is preparing to export this natural resource to other nations, including neighbouring Egypt in an already Israeli-approved deal that will add billions of USD to Israel’s current account in the coming years. In July 2016 the Israeli Government gave the go-ahead to develop the larger Leviathan gas field, and although final regulatory and investment decisions need to be finalized, a number of supply contracts have been agreed in preparation for an initial production date in 2020.

In summary, Israel’s well-developed institutions and education system will continue to cultivate a diverse and advanced economy while human development and the Israeli business environment also promote innovation, particularly in the high-tech sector. Even despite the political volatility in the region and under the still-relevant threat of war and terror, Fitch’s credit rating upgrade and analysis and is another strong indication to the stability and resilience of the Israeli economy and it being an attractive destination for investors worldwide.

Stefan Silver serves as the Director of Business Development & Operations at Wise Money Israel (WMI), the first licensed Investment Portfolio Management firm in Israel that works completely in English to serve local and international clients. WMI works with hundreds of individuals and organizations from around the globe to invest in Israel’s leading companies and technologies through Israel’s capital market – the Tel Aviv Stock Exchange (TASE).

Stefan holds a B.A.in Economics and Management, and an MBA from Haifa University. Born in Auckland, New Zealand, Stefan immigrated to Israel in 1992 and served for four years in the IDF’s Combat Engineering Corp, including combat experience on the front lines of the Second Lebanon war. He is currently a Captain in the IDF Reserves.

LinkedIn: Stefan Silver

The post Israel’s Credit Ratings Upgraded to A+ appeared first on Wise Money Israel.

When author Mark Twain visited the Land of Israel (then still called Palestine) in 1867, he penned impressions of what he witnessed in his book “Innocents Abroad”:

“A desolation is here that not even imagination can grace with the pomp of life and action. We reached Tabor safely. We never saw a human being on the whole route.  There is not a solitary village throughout its whole extent – not for thirty miles in either direction. ...One may ride ten miles hereabouts and not see ten human beings. ...these unpeopled deserts, these rusty mounds of barrenness...”[i]

In conclusion Twain claimed that “Palestine sits in sackcloth and ashes.... desolate and unlovely...”[ii]

Others described the land as “desolate and roamed through by Arab bands of robbers”[iii], “nothing but houses in ruins, cisterns rendered useless, and fields abandoned”[iv] and even late in the 19^th century a French traveler wrote that Haifa “can be crossed in five minutes”[v].

The picture is clear: a mere 100 years ago, the Land of Israel was desolate of people and of buildings, and villages that did exist were comprised of small, rural shacks. That is certainly not the scene that travelers arriving in Israel today first lay eyes upon.

“Though you were ruined and made desolate and your land laid waste, now you will be too small for your people, and those who devoured you will be far away. The children born during your bereavement will yet say in your hearing, ‘This place is too small for us; give us more space to live in.” - Isaiah 49:19-20

Construction in modern day Israel is booming, with apartment buildings, malls, hotels, highways, interchanges and high-rises springing up all over the country, like mushrooms after the rain. Today, Israel boasts over 750 skyscrapers that are 20 floors high or more – hardly a desolate wasteland with barely a village for “thirty miles in each direction” Israel is now a thriving and developed nation, constantly growing and building at an exceptional rate.

Especially notable is Israel’s largest city of Tel Aviv, where dozens of new corporate office buildings and luxury apartment buildings can be seen rising from the Ayalon freeway as it curves through the city. Major construction can also be seen in Kfar Saba, Kiryat Gat, Herzilya, Hadera and Rosh HaAyin with each city’s construction growth rate rising considerably compared to the same quarter last year by 309%, 260%, 114%, 109% and 100& respectively[vi]. The rise in construction is also reflected in Israel’s House Price Index which hit an all-time high in May of this year, up 114% in the past 10 years.[vii]. Israeli real estate prices even continued to rise during the 2008 global financial crisis, with no sub-prime or mortgage-backed securities setbacks.

Israeli real estate is seen by many as a solid and long term investment. However, purchasing real estate here requires a large amount of initial capital, comes with high entry and exit high fees (lawyers, bank fees, agents, taxes, etc.) and the investor must endure a hefty amount of bureaucracy. Property management from abroad is difficult, and unfortunately there aren’t companies here that offer that service to individual investors. Another disadvantage is the illiquidity of the funds used to purchase the real estate, and in times of need are difficult to obtain speedily without suffering significant losses.

That being said, there is a very practical way for investors to gain exposure in their global portfolios to Israel’s real estate market, and at the same time bypass the disadvantages that come with purchasing actual real estate. This is accomplished through purchasing real estate stocks and bonds in Israel’s financial market. The $5,000 investment brokerage account minimum allow the small and mid-size investor to have income-generating Israeli real estate in their portfolios that generate regular dividends.

There are several different options for purchasing real estate stocks or bonds on the Tel Aviv Stock Exchange:

1. A REIT – Real Estate Investment Trust – buys, develops, manages and sells rental real estate assets and real estate loans (mortgages).  Its professionals manage a portfolio of real estate properties that generally include commercial rental properties (such as shopping centres, office buildings, hotels, industrial buildings, etc.) that return rental income for shareholders, typically through large dividends and long-term capital appreciation. This type of specialized company offers shareholders ownership of real estate through the purchase of stock. Investing in a REIT stock versus the direct purchase of real estate has become a popular way for individual and institutional investors (pension funds, mutual funds and insurance companies) to easily gain exposure to the real estate market. REITs have been operating in the United States for small to medium investors since the 1960s, and together are worth hundreds of billions of dollars.There is are a number of publicly-traded REIT investments on the Tel Aviv Stock Exchange. ”REIT 1” operates as a real estate investment trust with a property portfolio that includes office buildings, commercial spaces, and industrial properties. REIT 1’s stock price has risen by over 180% during the past five years and currently holds an impressive market capitalization of 1.88 billion NIS (approx. $500 million USD)[viii]. REIT 1 is purchasable either through direct stocks or corporate bonds. Sela Capital, another Israeli REIT, has returned 25% to investors in the past 12 months. Another REIT, focusing on residential real estate, had an IPO this month.
2. Stocks and bonds of individual construction companies and/or indexes that track the Israel real estate sector. For example the Tel Aviv Real Estate 15 index includes stock in the largest 15 real estate companies, including the Azrieli Group, Alony Hetz Properties & Investments, Airport City, Africa Israel Properties and Shikun & Binui. The index has risen 18% YTD and has gained approximately 90% over the past five years[ix].

It is amazing to see how Israel has transformed from a desolate, desert, swamp land into the established built-up land that it is today. It is nothing short of a miracle. According to the Scriptures, looking ahead we can foresee that this modern-day, “nation born in a day” miracle will continue to grow and thrive. If you desire to take part in building up the Land of Israel, literally, by investing in Israeli real estate, you now know that there is a simple and accessible way to own Israeli land and real estate without the hassles of purchasing it yourself.

Stefan Silver serves as the Director of Business Development & Operations at Wise Money Israel (WMI), the first licensed Investment Portfolio Management firm in Israel that works completely in English to serve local and international clients. WMI works with hundreds of individuals and organizations from around the globe to invest in Israel’s leading companies and technologies through Israel’s capital market – the Tel Aviv Stock Exchange (TASE).

Stefan holds a B.A.in Economics and Management, and an MBA from Haifa University. Born in Auckland, New Zealand, Stefan immigrated to Israel in 1992 and served for four years in the IDF’s Combat Engineering Corp, including combat experience on the front lines of the Second Lebanon war. He is currently a Captain in the IDF Reserves.

LinkedIn: Stefan Silver

[i] Mark Twain, The Innocents Abroad

[ii] Ibid

[iii] Brockhaus, Alig. deutsch Real-Encyklopaedie, 7th ed. (Leipzig, 1827), Vol. VIII, p. 206

[iv] Count Constantine F. Volney, Travels Through Syria and Egypt in the Years 1783, 1784, 1785 (London, 1788), Vol. 2, p. 147

[v] Brother Lievin de Hamme, Guide indicateur, Vol. Ill, pp. 163, 190

[vi] Globes

[vii] Israel Central Bureau of Statistics

[viii] Tel Aviv Stock Exchange

[ix] Ibid

The post Building a Nation: Israel’s Booming Real Estate Market appeared first on Wise Money Israel.

By Wise Money Israel Analyst

In the past 5 years, the U.S. stock index S&P 500 increased approximately 105%. The Dow Jones Industrial Index returned about 86%. However, during that time period, Israel’s Tel Aviv Stock Index (TA-25) registered “modest” growth of approximately 54%. [The TA-25 doubled and quintupled Wall Street’s performance over the past 10 and 15 years time periods respectively]. The more interesting question is what will does the future hold? Which market will outperform over the next five years?

I believe that the Israeli stock market is more attractive than other developed nations, especially compared to the American stock market that gained considerably in the past five years. Here are three key reasons why investing in the Israeli stock market is a better investment than the American stock market:

1. 1. More attractive P/E Ratios: When comparing Price/Earning ratios¹ between stock markets around the world and other ratios, we can see that the Israeli market is more attractive (cheaper) than the majority of developed nations’ stock markets around the world, and in particular, the U.S. stock market. There are countries with more attractive multiples, but these are developing nations or emerging markets and not developed countries. See the table "Market Indicators By Nation". [Israel's indicators rank it as the 10th best market]

1. Macro-economic indicators support growth: When we look fundamentally at the Israeli economy, there are several indicators that support long-term growth, compared with the other developed nations in the world. For example, Israel’s Debt-to-GDP ratio of 67% compares well to Germany’s higher debt ratio of 75%, 91% in the Euro block, 101% in the United States, and 230% in Japan. In addition, Israel’s unemployment rate is approximately 5.0% [OECD average: 7.4%], GDP is about 3.0%, and Israel’s population growth rate is the second fastest in the world’s developed economies (only Ireland is growing faster). In addition, Israel is characterized by a young population, well-educated (ranking second place globally for percentage of high school graduates, and first place globally for percentage for PhDs). Despite these indicators, the domestic economy is lagging compared to developed countries in per capita income. Therefore, I believe that the local Israeli economy will continue to grow at a faster pace than the developed nations average in the coming years.
2. The ratio of companies’ valuation to GDP. As is well known, in the long-term a stock market’s valuation will move in relationship to certain key indicators. Warren Buffett claimed that the ratio of companies’ valuation to GDP is “the single best indicator for overall stock market pricing.” The table "Capitalization to GDP" summarizes the stock markets pricing valuation as derived from this ratio.
   [TABLE=32]
   

   click to enlarge

   

   click to enlarge

   As you can see in the graphs here, the ratio between the companies valuation compared to GDP of the Israeli stock market is approximately 0.78, meaning it is priced between “fair value” value and “cheap market” value. On the other hand, the U.S. stock market ratio is 1.27! In other words, the indicator shows that the U.S. stock market is very, very expensive, and we can expect to see a deep correction downward in U.S. indices.

Accordingly, I believe that in the near future, the Israeli stock market will outperform compared to the U.S. stock market, and therefore, we recommend that you increase your exposure to Israeli stocks, and consider closing U.S. stock market positions.

Disclaimer:
This work is carried out based solely on publicly available information. Not all tests were performed to verify the accuracy of the information forming the basis for this. The information may contain errors and subject to changes after the publication of this document. The information contained in this report does not purport to contain all the necessary information regarding the matters contained in it, nor is it intended to be a complete analysis of all the facts and information contained in it. Furthermore, there could be substantial discrepancies between the assessments introduced here and actual results. The editor/author is not obliged to inform the recipients in any way for such changes in advance or after the fact. This document should not be considered a recommendation or substitute's the reader’s own discretion or an offer or invitation to obtain offers, or advice to buy, making investments or carrying out activities or transactions whatsoever. This analysis reflects our understanding on the date of publication of the document. This document is not a substitute for professional advice, including legal advice and therefore you should not rely solely on the information contained in it, and it does not replace independent judgment and receiving professional or legal advice that takes into consideration the special needs of each person. Wise Money Israel, its employees and associates, and anyone acting on its behalf, shall not be liable in any manner for any damage and/or loss caused to the use of this document, if any, unless caused by negligence and/or lack of good faith and/or malice on their part, and cannot guarantee or be responsible for the reliability of the information set forth in this report.
This document is intended solely to qualified customers, as defined in the Regulation of Investment Advice and Investment Portfolio Management Law - 1995. This work is not to be distributed, transmitted, copied or used in any other way without the approval of Wise Money Israel’s prior written consent.

¹ Price/Earning Ratio - dividing the value of the trading company by net profit last year. This test was done on all public companies of the leading indices in each country.

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Planning Israeli Development Center?

Apple is also believed to be planning a semiconductor development center in Israel, a move that could synergize well with its recent acquisition. The facility would be the first of its kind for the company, which has preferred to contain research efforts within its headquarters. According to Calcalist reporter Assaf Gilad, Apple relies on the company’s solutions for the iPhone, iPad and MacBook Air product lines, among other devices, and the firm's proprietary "Memory Signal Processing" (MSP) technology reportedly attracted the Cupertino, Calif., company's interest. Anobit claims MSP can improve the reliability, performance, efficiency and endurance of flash memory while driving down the cost.

“The acquisition is further proof that Israel’s innovation overcomes boundaries and that the semiconductors industry is an innovative and leading field in Israel,” Koby Simana, head of the Israel Venture Capital Research Center in Tel Aviv said.

Rare Purchase for Apple

The 200-employee Israeli fabless semiconductor company that specializes in flash storage is Apple's first acquisition since Tim Cook took over Apple in August 2011 from the legendary CEO Steve Jobs, who later passed away. Apple uses its massive cash hoard to strategically invest in components and acquire companies that will give it a leg up on the competition. This is a rare hardware-based acquisition for Apple, as it typically buys software companies. The company's last major buyout of a hardware company came only in 2008, along with three others in the past two decades.

The technology could also offer some cost benefits for Apple, as it allows less expensive types of flash memory to be used. One report claimed Apple could see savings of between 10 to 20 percent on its flash purchases as a result of the Anobit acquisition.

As sales of its iPhone, iPad and MacBook Air products have taken off, the company has become the world's biggest consumer of NAND flash memory in recent years. Sanford C. Bernstein reported earlier this month that the iPhone maker accounted for 23 percent of the world's flash memory purchases last quarter.

Tim Cook, who now serves as Apple's CEO, says that the company is constantly looking for

strategic opportunities to use its cash. Israel’s Prime Minister Binyamin Netanyahu welcomed the company to the country in a post on Twitter saying, "Welcome to Israel, Apple Inc. on your 1st acquisition here. I'm certain that you'll benefit from the fruit of the Israeli knowledge."

Interested in investing in Israeli high-tech stocks available only on the Tel Aviv Stock Exchange? Learn more about opening an Israeli investment account here.

Other Recent Israeli Tech Acquisition

CSR Plc, the U.K. maker of chips used in Nokia Oyj mobile phones, completed the acquisition of the Israeli developer Zoran Corp. on Sept. 1, 2011 according to Bloomberg data. Citi Venture Capital International, a private equity investor and investment adviser focused on developing markets, paid $307 million in cash last year for Tel Aviv-based Ness Technologies Inc., an information technology company.

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