Israel Raising Rates But Setting Itself Apart

Central banks around the world have increased interest rates in a bid to rein in inflation. Israel was no exception, as the Bank of Israel delivered the biggest rate hike in two decades with a .75% increase on August 22, 2022. However, despite the consensus that there are more hikes to come in Israel and around the world, Israel stand “far from the madding crowd” (Jeffries, Israel Equity Strategy, 25 August 2022).

According to Jefferies equity research (25 August 2022), Israel’s rate hikes have been well-timed and deliberate, and were implanted into a strong economy at full employment. This sets Israel apart from the US and the rest of the developed world economy, potentially resulting in an attenuated monetary policy impact. Israel’s yield curve is “one of the few that is positive and has actually shifted upwards over the past month”, and “moreover, nominal GDP is well above nominal interest rates, ensuring that profits are likely to remain resilient (Jeffries, 25 August 2022). 

Israel’s market return is also now diverging from the rest of the developed markets outside North America. At the end of Q2 2022, MarketVector^TM reported on the underperformance of Israel equities, as defined by the BlueStar^® Israel Global Index (BIGI^®) – down 20% vs MSCI EAFE down 15% (MarketVector^TM, Israel Equity Review and Outlook, Q2 2022). But what a difference a month makes!   In the one month ending 24 August 2022, BIGI^® is up 10% vs MSCI EAFE up 7%, and BIGI^® is now outperforming MSCI EAFE on a YTD, 1Y, 3Y, and 5Y basis. 

Exhibit: Israel vs Developed Markets ex-North America Index Performance

Source: MarketVector Indexes^TM as of August 25, 2022.

MarketVector Indexes^TM (and previously BlueStar) has produced monthly updates on the Israeli market since 2012. The BlueStar^® Israel Global Index (BIGI^® or BLS and BLSTR Index on Bloomberg) is the broadest and deepest benchmark for Israeli equities trading worldwide, whether listed in Tel Aviv, New York, London, Singapore or Australia. BIGI^® is tracked by a NYSE-listed ETF, as well as an Israel domiciled index fund tracking BIGI^®.

For more information about Israel, read the latest BlueStar Israel Equity Review and Outlook Q3 2022.

About the Author:

Joy Yang is Global Head of Index Product Management at MarketVector Indexes^TM. She is responsible for managing MarketVector Indexes^TM products and services to accelerate innovation in financial index design and adoption. Joy brings more than 25 years of investment experience to MarketVector Indexes^TM, having led teams delivering index and quantitative-active investment solutions at Arabesque Asset Management, Dimensional Fund Advisors, Vanguard, Aberdeen Standard Investments, AXA Rosenberg, and Blackrock. Joy has an MBA from the University of Chicago Booth School of Business, and a BS in Electrical Engineering from Cooper Union’s Albert Nerken School of Engineering.

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