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After many months of a soaring stock market, the financial city of Tel Aviv is now feeling hot under the collar - and not just because the humidity season has arrived. With the record heights behind us, the local market has been dropping, such that some long-in-the-tooth players are reminded of the giddy days of 2002.

The disengagement in eight weeks (and the political turmoil and uncertainty it entails), the primaries and the international pounding of the euro - all have contributed to vast redemptions of mutual funds and a run on the dollar. A feeling of political wariness, not knowing if the coalition will break up after the disengagement, has caused the stock exchange to do an about-face after rising 100 percent in the past two years. The broad small cap Yeter index has lost 20 percent of its value since its record high in March.

Experts don't yet talk of panic, but do they feel the time is ripe to buy stocks and bonds, or are we in for a long dry spell?

Doron Zur, chief analyst at Deutsche Bank, believes the media fuss is too concentrated on the short term. "Whoever invests in shares should think of the long term," he says. "The question of whether now is the time to get in there is not the right question. An investor must ask himself, will the current price level bring me a good return over the long run?"

Zur does not believe the market is overheated. "It's not Nasdaq of five years ago. The prices are reasonable."

As for the shekel, there's no reason to run from it, argues Zur. "The dollar rate of NIS 4.5 is the same as two years ago. There have been six or seven flights from the dollar in the past five years, and they all ended quietly. I don't see a full-blown drama on the forex market."

Professor Beni Lauterbach of Bar-Ilan University, an expert in the capital market, warns against investing in the dollar. "It's a dangerous investment with low returns."

But then he's not so hot on stocks, either. "Despite the global economy supporting the stock markets, the prices are not exaggerated and are fairly priced. What could upset the apple cart is internal developments on the disengagement.

"Is this the time to buy stocks? Maybe there will be lower points in the course of the next few months. I bet that we haven't yet hit the bottom. In any case, stocks you can buy if you think of the two-, three-year long run. In the short term, I suggest you sit on the fence."

Zvi Lubatsky, a controlling shareholder of IBI and a veteran capital market player, was not jolted by this week's manoeuvrings. "What to do with your money is a question with no single straightforward answer, but then I don't see a change in the atmosphere here recently. The dollar has corrected upward, and maybe bonds will continue to drop a little, because the upward run was a little too strong. The market could come down a little, but we're not talking of anything dramatic."

Lubatsky sees the move from banking deposits to market instruments (shares and bonds) continuing. "This is what gives the market stability, but it does not guarantee that it will rise forever."

Shlomo Maoz, chief economist at Excellence Nassuah, recommends the emerging markets. "Government bonds in Brazil and Mexico have very high returns for no reason, so investing in them could pay off when the prices rise and the yields come down." But even so, part of the money should be invested in Israel. It's in a very good macroeceonomic position, he says, with GDP growing, exports to the U.S. rising and tourism reviving.