What Would You Do With NIS 100,000? Mizrahi Bank's Investment Portfolio

"Globes" continues with its weekly feature outlining the investment portfolio recommended by various investment managers operating in the capital market.

Under present circumstances, where securities consultation is no longer provided and Tel-Aviv Stock Exchange prices are low and considered attractive for investment purposes, "Globes" is endeavouring to fill the vacuum by presenting its readers with a service of basic investment recommendations.

This weekly recommendation, we would remind our readers, is intended for private investors, rather than companies or organisations.

Our experts, all of them seasoned capital market investment managers, have been asked to construct a recommended investment portfolio, giving detailed reasons. We have imposed no restrictions, recommendations need not even be limited to the capital market, and experts are entirely free to structure the portfolios as they deem best.

"What would you do with NIS 100,000?" is this column's leading question. Recommendations, however, are obviously valid for any investment amount, from NIS 10,000 to NIS 1,000,000. Today's recommendations come from the analysis department of Mizrahi Bank, headed by Moshe Gal.

Mizrahi Bank’s recommendations are based on a number of economic premises: the 1997 inflation rate will be 9%-10%, the shekel will be devalued by 8%-9% in relation to the dollar and the share market will rise by at least 10%. Recommendations regarding convertible debentures are based on a model constructed by the bank, which also prices the option inhering in the debenture.

Mizrahi Bank classifies investors in terms of risk taking and tailors its recommendations accordingly. Unlike other contributors to this column, however, it projects a time span of one to two years only. According to Moshe Gal, anyone investing for a longer space of time would be well advised to re-examine his portfolio at the end of one year.

Foreign currency

Mizrahi Bank does not recommend investing in foreign currency by means of dollar-linked (Gilboa-type) debentures. They assess that the Gilboa’s yield exceeds that of the index-linked debentures by only 1.5%, not enough to cover the risk of an outbreak of inflation. Instead, they recommend investing in foreign currency by means of dollar-linked debentures of private companies (concern debentures), provided that the companies are relatively stable and the yield on their debentures is relatively high. By way of example, the bank cites Ormat’s “D” series debentures, which are traded at a net yield of 6.3%.

Index-linked channels

Mizrahi Bank does not recommend investing in index-linked government debentures, since they are presently traded at a low net yield of 2.8% to 3%. This compares with an interest rate of 4.5% obtainable on two-year index-linked savings schemes (Mizrahi Bank does not mention the fact, but such interest rates are to be had primarily at Mizrahi Bank itself, and at mortgage banks - M.A.). For the solid investor, therefore, they recommend savings schemes.

For the less solid investor, looking for linkage to the index and prepared to assume the risk attaching to convertible concern debentures, Mizrahi Bank notes that these debentures are recommended also because of the option of converting them into shares and by reason of the attractive yields at which some of them are traded.

The convertible debentures most highly recommended by the bank are Maariv “A” series (traded at a net yield of 7%, with the prospect of the debenture’s failing to be redeemed very slight), and Securitas “A”, with a net yield of 5.4%; an attractive rate under the company’s new ownership structure).

Shekel Investments

Mizrahi Bank assumes that the Governor of the Bank of Israel will lower the interest rate in the economy by 1.5% in the next six months. This, in combination with Mizrahi’s inflation forecast, goes on to add to the attractiveness of the shekel channel. Mizrahi Bank especially recommends investing in a short term deposits (STD) of up to one year, which is preferable to investing in Gilon- or Shachar-type shekel debentures, because of the difference in commissions. In the long term (two to three years), the bank recommends dividing the investment between Shachar-type and Gilon type-debentures (Gilon in the 2208 and later series which are traded at a yield attractive for the private investor). The bank emphasises that based on its model, and assuming the interest rate is lowered, investment in Gilons is still worthwhile.

Shares

Mizrahi Bank is optimistic as to the yield on the share channel in 1997, and especially recommends focusing on export-oriented shares and on the chemicals sector. These are expected to be less severely affected by a possibly imminent recession.

Mizrahi Bank's recommended shares:

• A. Agan: This company, both an exporter and belonging to the chemicals sector, engages in the manufacture and marketing of pesticides and aromatic substances. It is growing steadily, strengthening its hold in overseas markets by acquiring foreign companies and also has a good dividends policy.

• B. Electro-Chemical Industries: This company engages in the manufacture of plastic (PVC), and has a high export component. It is benefiting from the rise of PVC prices world-wide and in Israel. It is undergoing a streamlining process. Mizrahi Bank expects that this share, presently trading low, will shortly recover.

• C. Bayside Land Corporation: While the real estate sector is not recommended, Bayside Land Corporation is an exception. The company, dealing in high-yield real estate and residential construction, enjoys a high rate of occupancy. Mizrahi Bank estimates that the company will not suffer from any deterioration of the high-yield real estate sector, since most of its property is located in high-demand areas, has a good geographical spread and is leased out for the long term. The company is financially sound, with a high rate of liquidity.

Disclaimer:
The source of the above comments works in the investment industry and may hold positions in securities mentioned in the column. This column should not be taken as advice to buy, sell or continue to hold any securities, and anyone acting on the advice of this column does so at his or her own risk.

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