Why Israeli Stocks and Currency Should Outperform Now

Barclays Capital came out predicting a quick end to the shallow Israeli recession, and a return to decent growth of 2.9% by next year. Keep in mind that the Israeli economy was late to the ‘recession game’ and looks to be an early ‘exiter’ from economic turmoil as well.

With all this great news Barclays said that they expect an Israeli Shekel/USD exchange rate of 3.65 buy the end of the year. That’s a big move from the 3.93 area that the currency is trading at now.

According to Globes: “Barclays sees a less severe recession in Israel, and relatively quick growth recovery. The investment house bases its optimism on the fact that about 75% of Israeli exports are high-tech goods, and Barclays says that a rise in the Tech-Pulse Index - showing a U.S. high-tech recovery - points to stronger Israeli exports. The Tech-Pulse Index, measured by the San Francisco branch of the U.S. Federal Reserve, tracks the U.S. information technology sector.”

It looks like we have started to see this happen. As Tech has led the stock market turnaround in the U.S., Israeli stocks that trade in the U.S. have been flying, up over 33% this year. Keep in mind that, like it or no, President Obama’s push for alternative energy sources will be huge for Israel, as Israel is one of the big global players in cleantech and water technology. If this trend of a ‘tech led recovery’ continues, look for the Israeli hi-tech scene, from small and mid-cap tech plays on the NASDAQ to M&A to Israeli VC, to have a very strong 2nd half of ‘09, and lights out for 2010.