"Israel's economic data do not justify the recent rise in prices on the Tel Aviv Stock Exchange. Prices in Israel are very high, and if the rise continues at its present pace, without the economy growing accordingly, a bubble is liable to develop," Altshuler Shaham Ltd. co-CEO and CIO Gilad Altshuler told "Globes" in an exclusive interview today.
The Tel Aviv 25 Index reach an all-time closing high of 1,344.34 points yesterday, and it edged up another 0.04% today to 1,344.85 points.
"The recent rally is not out of love for stocks, but because of dislike of the alternatives. Investors rushing to buy stocks don’t really want to invest in them, they simply don’t have anything to do with the money," says Altshuler. "Everything is of course due to the low interest rate, which drove investors to government bonds. When the 'meat' was finished there, they switched to corporate bonds, which rose handsomely until September, so investors felt comfortable with them. Now that the public has realized that the bond rally is over, and that short-term deposits are no bargain, it is switching to the only instrument with a potential for profits - stocks."
Altshuler obviously does not share the euphoria on the TASE, which has caused the Tel Aviv 25 Index to reach an all-time high, after rising 16 % since the beginning of September. In fact, it seems that the veteran portfolio manager is already beginning to look at the day after.
"We're reducing our exposure to stocks. We started the year with 33% exposure to stocks in provident funds, and we now have 25%. It's a pity that customers who had 10% exposure to stocks are now buying them, because this is something that they should have done earlier," he says. "I understand it, because the Israeli public was insufficiently invested in stocks, but there should be exposure to this instrument all the time; people should not act on the basis of the market's behavior. This is a recipe for losses."
"Globes": Do you think that this euphoria is justified, or are we facing a crash?
Altshuler: "I don’t think there will be a crash, but the best time to leave the market is when it's in good shape. Moreover, we definitely see some of the warning signs that repeat themselves every few years."
For example?
"We have a mutual fund that invests in the TASE Yeter small-cap index, which rose 50% in the past year. A year ago, the public didn’t invest a shekel in this fund. Now, after the rally, this fund is raising millions of shekels every day. Why now? Where were you before? I only hope that the investors now coming in won't do what they always do, and flee the moment a problem emerges in the market. Those who come to make a fast buck, usually lose."
In your opinion, what should investors do now?
"First of all, this isn't the time to increase holdings in stocks. Today's prices are far from cheap, both in Israel and overseas. I think that a sound investment portfolio should have 25% exposure to stocks, two-thirds to foreign stocks and one-third to Israeli stocks, 25% exposure to corporate bonds, and 30% exposure to government bonds. You don’t always have to make a profit; sometimes, avoiding losses is just as important."
The TASE rally has lasted nearly three months, during which most of the main indices have risen. The enthusiasm also registered in trading turnover, which rose by 40% over the period, although it has started to drop in the past few weeks. Money is flowing into mutual funds and ETFs at an impressive rate, especially into stock-based funds, which broke their 2003 record this week, and the bond market is flourishing.
What in your view led to the positive trend in Tel Aviv?
"I think it's a combination of several things, not just the switch to stocks. What has also contributed to the rises is parties at interest, who are now starting to exploit the high prices and to sell. The fact that things are fairly quiet on our borders certainly helps, especially as far as foreign investors are concerned."
So the rally should be credited to the foreign investors?
"You have to remember that all kinds of events distort trading figures, such as updating of the indices and things like that. Apart from that, in my opinion the foreigners are coming back, because we see it in stocks like Bezeq that rely on overseas investors, but only a trickle of them. We are not at the levels we were used to in the past. If the region stays relatively calm, then the current trend will continue."
This is Altshuler's first interview since a wave of redemptions hit his investment house. In the past few months, when most of his competitors were taking in money, Altshuler Shaham has sustained redemptions totaling NIS 1.2 billion from its mutual funds and provident funds. Some industry players rushed to declare that Altshuler Shaham, which took the title for the largest influx of funds in 2012 (NIS 16 billion added to its assets), and so far this year has taken in NIS 12.5 billion, was on the way out.
"I understand that three months of redemptions is something that very much excites some of our competitors, who thought we had grown too much, but I'm really not concerned. The fact is that in the past few weeks there has been recovery in our mutual and provident funds, both in money coming in and in returns. Incidentally, one of the reasons that our mutual funds were hit is the banks' rating systems, which are highly problematic. The time has come for the regulator to take action on that."
Published by Globes [online], Israel business news - www.globes-online.com - on November 21, 2013
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