Following publication of the Ben-Bassat report, Leonor Terkieltaub of Gift Assets Management says, "I assume we'll see a transfer of money from shekel instruments to dollar instruments, since both channels will be taxed. To date, investors benefited from untaxed investments in shekel deposits, while now, the recommendations are pulling the rug from under these instruments.
"Under the circumstances, the advantages of shekel investments should be re-examined, and I can't see a reason for it, in light of the existing interest rate. At the moment, I receive 7% interest on a dollar-nominated account, while the interest rate on a shekel account will stand at 9-9.5% toward the end of the year. A 2% gap is not sufficiently attractive for investing in a shekel instrument with the attached risk of shekel linkage, in place of dollar linkage."
Regarding investments in Israel by foreign investors, Terkieltaube says, "The report recommends taxing foreign residents' revenues stemming from Israeli sources. The question is whether this refers to non-financial or financial sources. I would prefer to wait and see what materializes, and assess the situation then." She expects the shekel will continue to weaken, mainly due to the diversion of money from shekel to dollar instruments.
Jack Goldhar, general manager of Koor Future Markets says, "If foreign investors are taxed on their holdings in shekel instruments, I believe we'll witness a massive exodus of money followed consequently by the weakening of the shekel. At the moment, foreign investors are injecting money into Israel in order to benefit from a financial investment in shekel deposits. If their investments are taxed, I believe this money will flow out of the market, since it will be less worthwhile for foreigners to invest here.
Eli Nahum of Nessuah-Zannex says, "There's no doubt that the reform makes the investing in dollar instruments more attractive than shekels. At the same time, I would not rush to jump to conclusions, and I think the improved attractiveness is not as vast as it is being portrayed. I therefore don't foresee a rush on the dollar.
I estimate that in the short term we'll see the dollar strengthening, and it may possibly even reach NIS 4.15. On the other hand, to say that the shekel era is over is not correct. We won't see a permanent trend in which the dollar strengthens at the expense of the shekel."
Published by Israel's Business Arena on 4 May, 2000