How COVID-19 Made Israelis Richer — but Only in Dollars

A new report by Credit Suisse shows that while global wealth increased during the year of the pandemic, the numbers in Israel tell a more complicated story

David Rosenberg
David Rosenberg
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Masked shoppers in Jerusalem's Malha Mall
Masked shoppers in Jerusalem's Malha MallCredit: Emil Salman
David Rosenberg
David Rosenberg

The coronavirus year is supposed to have been a great one for the world’s wealthy, including Israel’s. While the global economy was shrinking and unemployment soared, the rich were earning huge returns on a booming stock market.

Last week, Credit Suisse reported that global wealth, which includes the savings of everyone from billionaires to lower-income earners who have managed to put away some retirement savings, grew 7.4 percent last year. Israelis did better than the world average, with their total assets growing by 9 percent to $1.284 trillion.

But the calculations aren’t necessarily that straightforward. Relative to other rich countries, Israel’s population is growing faster. After taking that into account, average wealth grew a more modest 6.7 percent in 2020 to $228,268 – still higher than the world’s 4.1 percent but substantially less than the combined figure.

However, after taking into account the impact of exchange rates, Credit Suisse figures show that Israeli assets barely grew at all last year. Because the shekel appreciated 7.5 percent against the dollar last year, making it among the world’s strongest currencies, an Israeli needed to do nothing but sit on his or her savings and in dollar terms they would grow. When Credit Suisse discounted the exchange rate effect, the average increase in Israelis’ wealth amounted to a paltry 0.9 percent increase.

In that respect, the strong shekel didn’t make Israeli a global outlier. Since Credit Suisse measures wealth in dollars, even though in fact most of the world keeps its wealth in other currencies, the impact of a weaker U.S. currency cut into wealth gains in many countries. Worldwide, after discounting the exchange rate effect, global wealth during the coronavirus year increased 4.1 percent, much less than the headline 7.4 percent figure. On a per capita basis (which for Credit Suisse means per adult since children don’t have their own fortunes) it grew by just 2.7%.

Anthony Shorrocks, the report’s lead author, said the COVID year didn’t increase the world’s wealth as much as conventionally believed. “The increase in 2020 was relatively low. Looking at the annual growth rate, 2020 was less than any year since 2011,” he said in an email.

As to whether the more accurate gauge is dollar wealth or dollar wealth adjusted for the local exchange rate, Shorrocks is agnostic. “Depends on your viewpoint. If you were a rich Israeli holidaying in the U.S.A., then the shekel appreciation may be significant,” he said.

The impact of a weaker U.S. currency cut into wealth gains in many countries, including Israel, over the last year. Credit: Andrew Kelly/Reuters

During the COVID year, almost no one was traveling internationally and this year, too, the outlook for world travel remains dim amid a resurgent coronavirus. Where Israelis may have enjoyed the dollar increase in their wealth is shopping online, which grew a lot thanks to repeated lockdowns, and probably contributed to the modest 0.6 percent increase in consumer prices last year.

Why Israelis didn’t wax so much richer last year is not so easy to explain. Israel’s high-tech sector rode the wave of global infatuation with remote services and other tech solutions, but it took time for the money to start flowing into the local industry. Israel Venture Capital Research figures show that Israeli tech companies took in $15 billion from exits through mergers and acquisitions and initial public offerings last year, down $1.3 billion from 2019. In any case, much of the proceeds from exits accrue to foreign investors, not Israelis.

While Wall Street was posting record highs last year, the Tel Aviv Stock Exchange’s leading index, the TA-35, slumped 10.8 percent. That made it one of the world’s worst performers in 2020 and erased a lot of wealth on paper.

One data point in the Credit Suisse report provides a small insight into how COVID wasn’t quite the gold mine for the wealthy as commonly assumed by looking at the fortunes of Israelis included in Forbes’ top 1,000 billionaires in the world in the first half of 2020.

On March 18, about the time Israeli and global stock markets were reaching the bottom of a COVID sell-off, Credit Suisse estimated the combined wealth of the 10 Israeli billionaires on the Forbes list at $68.4 billion. By the end of May, when markets were now rallying, their riches had risen to $76.7 billion. By the end of June, however, they had fallen back to $74 billion.

By comparison, the Forbes’ 1,000 billionaires saw their wealth keep on growing – from $70.3 trillion March 18 to $84.8 trillion at the end of June, at which point Credit Suisse stopped checking.

Another factor in Israel’s lagging performance is housing prices. Unlike many others measuring the world’s wealth, Credit Suisse not only includes stocks and bonds, but also the value of people’s homes in its calculations (and also the value of their pensions). These non-financial assets make up just 28.4 percent of Israeli assets, which is much lower than the world average.

The Tel Aviv Stock Exchange in September 2020. While Wall Street posted record highs last year, the Tel Aviv Stock Exchange’s leading index, the TA-35, slumped 10.8 percent. Credit: Eyal Toueg

For many years, with home prices soaring, the value of Israelis’ homes added appreciably to their wealth. But during the COVID years, they climbed just 3.8 percent, at the lower end of countries surveyed. In the United States, they rose 10.8 percent.

Since the Credit Suisse report takes into account the assets of all people, not just the wealthy, the question remains whether the richest did well while the middle class did less well or even saw their wealth shrink during the pandemic.

The data for Israel does not offer a breakdown, but they do show that the richest 10 percent of Israelis control 61.8 percent of the wealth. The top one percent control no less than 31.4 percent. If the rich did so well during the COVID year, it would inevitably have raised the gains for everyone.

To be sure, not everyone believes Israel’s wealthy failed to make big gains during the coronavirus. Although it cites an earlier Credit Suisse report showing the number of Israeli millionaires actually declined in 2020 by 0.1 percent, the left-of-center Adva Center, for one, thinks that the rich benefited from the way the government rescued the economy from the worst impact of the pandemic last year.

The government spent close to 140 billion shekels ($43 billion) on everything from enhanced unemployment benefits to aid for businesses, a figure that was proportionately less than other governments, like the U.S. and Germany spent, but still generous, said Alex Zabezhinsky, chief economist at Dash - DS Investment & Securities.

”It was the same in Israel as in other developed countries in the world, where the government supported business and households during the pandemic. At the same time, people continued to work and get salaries, and saved money because consumption went down. As a result, for example, the Bank of Israel deposits in the banks grew to something more than 200 billion shekels, which was a very sharp rise,” he said.

The Adva Center contends, however, that government aid benefited the wealthy more than anyone else.

The government spent close to 140 billion shekels ($43 billion) on everything from enhanced unemployment benefits to aid for businesses, but the Adva Center contends that the aid benefited the wealthy more than anyone else.

"It is well acknowledged, that during the epidemic, the poor became poorer," says Dr. Yuval Livnat, Adva's executive director, "but our research also shows that some of the rich - and especially the mega-rich - got richer. Their real estate and capital investments were fruitful, and in some cases, the government even assisted them. In light of this, Lieberman's refusal to raise taxes (or impose new ones) on the super-rich is outrageous, and will result in the further decline of public services, on which the lower and middle classes depend."

It cites a survey by TheMarker that estimates that in 2020 the capital of Israel’s 500 richest people grew 7 percent to $246 billion, not very different from the Credit Suisse number before adjusting for the shekel exchange rate.

In any case, government coronavirus spending did help the poorest more than any other group, at least in terms of income. The National Insurance Institute estimated in its latest report that the poverty rate declined last year to 21.6 percent from 22.4 percent in 2019, which it attributed to the “progressive” nature of government aid.

Overall, incomes last year dropped 2.5 percent and those for the top 10 percent of earners dropped by 1.7 percent, according to the NII. The bottom decile of earners actually saw their income jump by 10.9 percent (the biggest drops were for the middle class).

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