Retirement Investing: How Best To Invest In Israel?

Includes: CHKP, EIS, MDT, RDWR
by: Aaron Katsman

Retirement investing is starting to go global. When it comes to international investing, usually Europe or Japan get most of the headlines. But retirement investors shouldn’t sell themselves short. There is a whole world out there to invest in, and certain destinations may be better than others. In this post I would like to focus on investing in Israel.

I have written in numerous publications about investing in Israel. While many of my articles may seem a bit too ‘Rah Rah’ or cheerleader-like, and that they were actually written by the Israeli finance ministry, the facts are that Israel has turned into a sought after investment destination. Economic data certainly supports the fact that not only has Israel weathered the financial crisis, but actually has flourished during this time period. With the U.S. reporting an unemployment rate over 7% (the real jobless rate is closer to 12-15%), the situation in the holy land is much better. Unemployment is lower than in the U.S., GDP growth continues at 3%+ levels, and foreign investment keeps pouring in. How many western economies can say that? Throw in a strong currency - maybe the best sign of overall economic strength - and the Israeli economy continues to push ahead nicely.

The very successful book "Start-Up Nation: The Story of Israel’s Economic Miracle" (New York, 2009) certainly made the case for why Israel has flourished, against all odds, economically. I can’t tell you how many emails and phone calls I have received from people who have read the book and are now all revved up to invest in Israel. The question I hear the most is, “How can I invest in Israel?”

Stay local?

For many investors, investing in local Israeli stocks is one alternative way of gaining exposure to the Israeli economy. If you want exposure to the strong domestic growth you could buy for example a local food company like Strauss or phone company like Bezeq. In order to do so you need to open up a local Israeli brokerage account, invest in Shekels and speak in Hebrew to a local advisor. While this may be fine for some investors, for native English speakers this is a big step.

Keep in mind that while Israel’s economy is strong there is a big world out there with many countries boasting both solid economic fundamentals and growth. A tour through Asia or Latin America emerging markets will find many countries with 3+% growth. Local food companies and telecommunication companies are a dime a dozen.

In addition not all in Israel is so rosy. Israel GDP growth has slowed because of the continued global slowdown and taxes have been raised twice in the last year and a half to fund budget deficits. The powers that be are trying to do anything possible to cool the local real estate market. A few years ago, Israeli’s took to the streets in a huge social protest. Those protests have continued to hurt the economy as we ended up getting higher taxes, the nationalization of early childhood education and continued governmental (or more accurately Prime Ministerial) intervention in the economy, most notably in gas prices. None of this will improve growth prospects you can be sure.

Go global?

The real growth story in Israel is the ingenuity and creativity exported by Israel. Those excited after reading Start-up Nation weren’t running to invest in a small company that invests in canned Israeli food. In fact the local Tel- Aviv Stock Exchange (TASE) has been underperforming major global indices for a few years. Rather they want to be part of all the ingenuity and creativity that Israel exports. Investors want to invest in companies that power the world. It’s no secret that the largest multi-national companies in the world are very active in Israel. Whether it be Microsoft or Johnson & Johnson or IBM or any of a multitude of other well know companies, they all come to Israel to acquire or invest in today’s cutting edge technologies. From companies that can put a camera in a pill to help alleviate the need for invasive gastro procedures [Given Imaging (GIVN)], to companies that lead the world in computer security [Checkpoint (NASDAQ:CHKP)] to companies that are leading the move into cloud computing [Radware (NASDAQ:RDWR)] what Israel does very well is power the world based on technology and that’s what becomes exciting as an investment. These companies, the majority of which trade in the U.S. have the potential for serious growth with increased IT spending by major corporations on the horizon, these companies and investors have the potential to benefit.

The easiest way to access these companies is via the Israeli stocks that trade in the U.S. As has been widely reported, Israel has more companies trading on major U.S. exchanges than any other country in the world ex-China. Not all Israeli companies are created equal and investors should do in depth research before investing. As some of these companies are not very large, the smallest piece of news can send their stocks either soaring or tumbling. It’s therefore important to speak with your investment adviser to see how, if at all, investing in up-and-coming Israeli companies fits into your overall retirement investment portfolio.

Disclaimer: The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.