"The Iranian cloud will continue to hang over the Israeli market in the coming weeks. The economic consequences of a war with Iran are difficult to predict, but there is no doubt that their effect on the local economy will be substantial for a period of time," says Harel Finances in its weekly review.
"The Israeli capital market has not ignored these concerns, and the negative response is reflected in both savings instruments and government bond instruments," says Harel, and it advises against increasing risk exposure in corporate bonds.
"In view of the positive atmosphere in foreign stock markets and the declines in government bonds, an increasing number of American investors have preferred to switch to corporate bonds despite the shrinking margins," says Harel. "However, this is not seen in the Israeli market; on the contrary, the TASE Tel Bond indices fell last week."
Because of the relatively high yields on corporate bonds, Harel advises holding diverse bond holdings, as it believes that current bond yields compensate for the risk. It warns however, "do not increase risks for conservative customers with an existing corporate bond component, as volatility will probably continue."
As for the stock market, Harel believes that for long-term investors, prices are very good for investment, for short-term investors, volatility will continue. It adds that the banking and telecommunications sectors "have begun to correct the distortions in their prices."
Published by Globes [online], Israel business news - www.globes-online.com - on August 20, 2012
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