With the frenzy on global markets in recent days, Excellence Investment House is trying to soothe investor fears. "The two main reasons for the December stock market plunge - a constraining monetary policy and the trade war - are no longer relevant. Both China and the US are striving to calm things down and reach agreement soon. They have also taken effective steps," Excellence chief investment manager Yehuda Indig told "Globes."
"Globes": What caused the December crash?
Indig: "In my opinion, the US Federal Reserve Board's fourth interest rate hike this year, and especially the expectation that the US central bank will continue raising its rate in 2019, which means two more interest rate hikes. What is more is significant is that US Federal Research chairperson Jerome Powell said at a press conference following the interest rate announcement they would continue the balance sheet reduction program. This, together with the publication of global macroeconomic data indicating a slowdown, which is affecting the markets, were the main triggers for the falls."
What do you think about the tumbling of oil prices?
"This also greatly disturbed some of the players in the markets. It is liable to affect the energy companies, of course, and the banks having exposure to this sector. It might also indicate that an economic slowdown is imminent."
Indig also cites as influences on the markets "the opening of wide spreads in corporate bonds in all of the world's developed markets. The economic situation in some countries in Europe is also not brilliant, to say the least. Macroeconomic data in the EU continue to be weak."
What about Israel?
"There is some slowing in private consumption and some decrease in the growth rate, but all in all, our basic economic data are very good. What made the local market fall, of course, was the global trend, but uncertainty about the Bank of Israel's policy following the entry of the new Governor should be added to this. The government budget deficit is also a bit alarming."
What also obviously influenced the Tel Aviv Stock Exchange (TASE) this week, Indig says, was "The huge selling by the mutual funds, in addition to the political uncertainty and the announcement of early elections."
What do you prefer geographically: the US, Europe, emerging markets, or maybe Israel?
"Balanced exposure between Israel and the rest of the world. In the US, the future profit multiple fell to historically low levels following the market slide, which in our opinion creates an investment opportunity. There is also a buying opportunity in the emerging markets, which were hit hard by the weakening of other currencies against the dollar and the increase in yields in the US this year. A substantial amount of capital left the emerging markets this year, and we wee that this has greatly slowed recently."
"Neither global recession nor inflation"
What do you think about the bond market in general, and corporate bonds in particular?
"We're recently seen large spreads here, mainly because of the selling by the mutual funds and because of what is happening around the world. Margins have opened up in the US and other developed markets, but the state of companies here is good, so that opportunities have been created in some of the companies."
Things have calmed down in the past two days
"Right. Selling by the mutual funds has slowed down, while on the other hand, investment institutions like the pension funds have started buying in the market."
Addressing the heart of the matter - what he believes will happen in 2019 - Indig says, "The market is currently assuming that there will be a recession in the US next year. This isn't our base scenario, because the indicators today don't predict one. Growth will be weaker than in 2018 in most of the world's economies, but there will be no global recession. We foresee no outbreak of inflation, which will enable the central banks to ease their monetary policy. The volatility seen this year is also likely to accompany us in 2019. In the corporate bond instrument, we prefer a defensive policy, meaning short-to-medium-term loans and exposure to rated bonds with specific senior liens."
What sectors are preferable?
"The banks are definitely a preferable sector. Moderate inflation and a moderate interest rate hike without a recession will support the banks in 2019. Another sector is food retailing. We expect a continued moderate price rise, combined with small competitors leaving the market, which will ease competition in the sector."
Published by Globes, Israel business news - en.globes.co.il - on December 30, 2018
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