Less than a month ago analysts at Excellence Investments Ltd. (TASE: EXCE) warned against an assets bubble in Israel caused by the Bank of Israel's expansionist monetary policy. They said that the low interest rate was inflating bubbles in the stock and real estate markets, but that it was possible to profit from them by buying bank shares. Today, Excellence has announced a fundamental change in its investment strategy and is substantially increasing the proportion of bank shares in its investment portfolio.
"The combination of rising inflation and a super-low interest rate is inflating the domestic assets bubble, which is acting in favor of the banks in that it greatly reduces their provisions for doubtful debts. It also favors insurance companies, which are expected to again soon start collecting variable management fees," says Excellence.
Excellence is preparing a new, "sure" investment strategy because it believes that when the Bank of Israel begins to raise the interest rate, the commercial banks will continue to benefit due to the surge in their interest income. Excellence advises buying shares in Bank Leumi (TASE: LUMI), which "made generous provisions for doubtful debts and will therefore profit particularly from the assets bubble", and in Bank Hapoalim (TASE: POLI), which "will profit from the bubble, although not as much as Bank Leumi".
On July 22, Excellence's analysts first mentioned an "assets bubble" in Israel and advised buying bank shares. Since then, the Tel Aviv Stock Exchange (TASE) Banking Index has risen 9.7%. Excellence expects inflation to reach 4.2% in 2009, above the government's price stability target range.
Excellence also recommends Bezeq The Israeli Telecommunication Co. Ltd. (TASE: BEZQ) because of its dividends policy. Bezeq today announced that it will distribute a dividend of NIS 1.14 billion - 100% of its profit in the first half of 2009. The company decided to adopt an aggressive dividends policy to distribute all its profits every six months. Excellence says, "The low interest environment strongly supports stocks that pay dividends, such as telecommunications companies and Shufersal Ltd. (TASE:SAE;Pink Sheets:SSLTF). Dividend income is especially attractive for investors in a negative real interest rate environment."
Excellence also gives an "Outperform" recommendation for Migdal Insurance and Financial Holdings Ltd. (TASE: MGDL), Harel Insurance Investments and Financial Services Ltd. (TASE: HARL), Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL), Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA), global real estate firm Gazit-Globe Ltd. (TASE: GLOB), Paz Oil Company Ltd. (TASE:PZOL), and Shufersal.
Published by Globes [online], Israel business news - www.globes-online.com - on August 5, 2009
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