WAR PROFITEERING

Israeli Stocks Recoup Their Multi-Billion Dollar War Losses

Paul Wallace
Mon, December 18, 2023 

(Bloomberg) -- Israeli stocks recouped all their losses from the war against Hamas, with investors optimistic about the economy’s resilience as fears of the conflict spreading into the wider Middle East haven’t materialized.

The Tel Aviv Stock Exchange 35 Index rose 0.9% to 1,834.26 points as of 11:15 a.m. local time. It’s now above its closing level on Oct. 5, the last day of trading before Hamas’ devastating attack on southern Israel.

Israeli assets dived when the war erupted. The shekel slumped to its weakest since 2012, bond yields soared and the equity market fell around 15%, with almost $25 billion of value being wiped out.

Those assets have recovered since late October, even as the war continues to rage in the Gaza Strip. That’s down to the central bank creating a $45 billion support package for the currency and signals that Iran-backed militant groups such as Hezbollah will refrain from all-out attacks on Israel.

Israeli markets have also been boosted by a broad rally in global stocks and bonds since the start of November, after the US Federal Reserve gave further indications it was done with raising interest rates.

Stocks in Israel remain cheap relative to those in most other markets. The TA-35’s forward-looking price-to-earnings ratio is far below those of the S&P 500 or MSCI Inc.’s emerging-markets equity index.

There are still plenty of risks for traders in Israeli assets. The fighting in Gaza is far from over, even as pressure on Israel to wind down its ground operations escalates. Houthi rebels based in Yemen have attacked several ships in and around the Red Sea in recent weeks, leading the US to consider military action against the group.

The conflict continues to exact a high financial toll on Israel. The Bank of Israel estimates the cost — mostly in the form of higher defense expenditure — will amount to $53 billion. Many businesses are struggling with hundreds of thousands of workers called up for military duty.

Hamas, designated a terrorist group by the US and European Union, killed 1,200 people and abducted 240 with its Oct. 7 incursion, according to Israeli authorities. More than 18,000 Palestinians have been killed in Gaza since Israel retaliated with airstrikes and the ground assault, according to the health ministry in the Hamas-run enclave.

 Bloomberg Businessweek

First Israel-Focused Bond ETF Launches

Lucy Brewster
Mon, December 18, 2023 

Israel

Defiance ETFs, a thematic-focused exchange-traded fund firm with $1.2 billion in eight ETFs, launched the first Israel-focused bond fund this week as conflict rages in the region.

The Defiance Israel Bond ETF (CHAI) tracks the Midgal Capital Markets BlueStar Israel Bond Index and launched on Dec. 13. The index provides exposure to Israeli shekel and U.S. dollar debt issued by the Israeli government or companies. The fund’s bonds have an average of 8.3 years to maturity and an average yield to maturity of 5.73%. The fund pays interest every month.

The top holdings of the fund include the Israel Discount Bank Ltd. 2.68%, which matures in 2030, and the Mizrahi Tefahot Issuing Co. Ltd. 2.98%, which matures in 2025.

The launch marks the fifth U.S.-traded ETF focused specifically on Israel. It comes on the heels of Israeli ETFs tumbling in the aftermath of Hamas's Oct. 7 attack on Israel, and Israel's subsequent invasion of Gaza in an effort to topple the governing body that's been labeled a terrorist organization by the U.S. The largest Israel-focused ETF, the $126.35 million iShares MSCI Israel ETF (EIS), fell 7% on Oct. 9, before recovering in the next days. The fund is up 10% in the past month despite continuing battle.

Fixed-Income Opportunities

With just a couple of weeks left in 2023, analysts have warned investors to get off the sidelines and pursue growth opportunities in both equities and fixed income.

“2024 will be a year to pick your spots in fixed income,” Gargi Pal Chaudhuri, head of iShares Investment Strategy Americas at BlackRock, wrote in the firm’s 2024 report with other investment strategists at the company.

Defiance’s largest fund is the Defiance Next Gen Connectivity ETF (FIVG) with $568 million under management.

Contact Lucy Brewster at lucy.brewster@etf.com.