Stock Market Will Overcome Spike in Uncertainty, Bank Leumi Predicts

Assuming the macroeconomic variables remain robust

In Israel, various spheres - economic, political, and security - all affect one another. The high level of share prices coupled with the suddenly worse political uncertainties could depress the stock market in the short run, say Bank Leumi equity analysts. But in the longer term, assuming background factors remain positive - growing economy, financial stability, stable budget policy and execution of economic reforms - the gains should resume.

Looking at the forex market, the Leumi analysts believe that in the short run, the influence of internal factors will affect the shekel more than developments in international trade. But the activist policy of the Bank of Israel and trends in the international marketplace will continue to support the strength of the shekel in the long term.

Moving onto bonds, the Leumi analysts say Sharon's collapse made the yield curve steeper; it had flattened out lately. Yesterday the gap between short-term government shekel bonds and long-term ones was 1.2%, up from 1% on Wednesday.

The gap's increase reflects the increase in uncertainty, Leumi explains. The analysts predict that the curve will remain steep until the uncertainty abates.

But the strength of Israel's economy all but assures that the downtick on the bond market is all but over. Attractive options in the bond sphere include medium-term makams or bonds, they say.