The year 2023 brought unprecedented challenges to the State of Israel, marked by internal strife over justice system reforms and a harrowing war triggered by a murderous Hamas attack near Gaza. Amidst the turmoil, the Israeli economy faced uncertainties, leaving investors wary of the market’s performance. However, a closer look at economic indicators reveals a resilient financial landscape that weathered the storm, presenting opportunities for strategic investments.

Israeli Capital Market Overview

Despite a turbulent year, the Israeli capital market exhibited moderate changes. The TA-35 index rose by approximately 3%, recovering from sharp declines recorded during the war. The shekel, which initially weakened against the dollar due to legal reform and conflict, strengthened in the final weeks of the year, with the American currency gaining only 3% against it.

Simultaneously, global stock markets experienced a robust year, particularly Wall Street, with the S&P 500 and Nasdaq soaring by 24% and 45%, respectively, reaching new highs. This stark contrast to the previous year, where most investment channels suffered losses, underscores the resilience of international markets.

2023 in Retrospect and Investment Houses’ Forecasts

As investors reflect on the past year, those who remained patient amid market volatility witnessed positive returns, especially for those exposed to foreign investment channels. Forecasts for 2024 from leading investment houses in Israel paint an optimistic picture, anticipating a double-digit rise in the Tel Aviv stock exchange, aiming to recover from the previous year’s setbacks.

Altshuler Shaham, one of the leading financial firms in Israel, highlights the impact of high global interest rates in 2023, leading to accumulated funds in risk-free deposits. As interest rates are expected to decrease, they anticipate a shift of funds to fuel both stock and bond markets.

Forecasts for 2024 suggest a positive trajectory for the Israeli economy, driven by expectations of a gradual recovery from the war. Investment houses predict a drop in interest rates in Israel sooner and faster than in other countries, contributing to economic stabilization. Inflation is expected to return to the target range of 1%-3%, mainly within the upper half.

However, the global economic landscape may face challenges, with a projected slow growth of around 3% in 2024, particularly in developed countries. The easing of interest rates in the U.S. is expected in the first half of 2024, followed by Europe.

Opinions on the Israeli currency vary among experts. Kobi Levy, who leads the market strategy desk at Leumi, notes that in 2023, the shekel experienced a depreciation against both the dollar and a basket of currencies, deviating from its typical long-term trend of appreciation. This divergence can be attributed to adverse sentiment factors that contributed to devaluation, surpassing the fundamental forces that traditionally bolstered the shekel. According to their assessment, this trend is expected to persist in the upcoming months under the prevailing circumstances.

Discrepancies and Uncertainties

Notably, discrepancies exist between investment house forecasts and market realities, as evident from the gaps observed at the end of 2023. Geopolitical uncertainties, potential conflict escalations, and market clouds loom large, with Migdal Capital Markets emphasizing the impact of geopolitical events on market conditions.

Key Investment Recommendations

Looking ahead, investors are advised to consider sectors that are sensitive to interest rate changes, such as yielding real estate, infrastructure, and green energy. The technology sector remains a promising avenue, although expectations are tempered after the remarkable performance of 2023. Other recommended sectors include biotechnology, focusing on health-related innovations, and banking and finance stocks, perceived as attractively priced.

In conclusion, while Israel faced profound challenges in 2023, the resilience of its capital market and positive forecasts for 2024 indicate opportunities for strategic investors. Navigating these opportunities requires a keen understanding of global economic trends, geopolitical factors, and sector-specific dynamics. As the nation rebuilds and recovers, strategic investments could yield positive returns in the coming year.