The big economic story of this year is undoubtedly the inflation that has risen in many countries around the world and in the US to a 40-year high. The rise in inflation led the central banks around the world to tighten monetary policy and raise interest rates in order to cool it down, which caused a real uproar in the markets.
In many countries in the world, the inflation indices were at a higher level than the targets of the central banks. In the USA, inflation is at a level of 7.1% in November (after already reaching a level of 9.1% in June, a very high rate in historical terms). The Eurozone also saw a rapid increase in inflation, whose rate was 10.0% in November. In Israel, inflation is at lower levels of about 5%.
Global inflation has several sources. Among them are disruptions in the supply chains, high energy prices, also as a result of the war between Russia and Ukraine, as well as the effects of the trade war between the US and China. Moreover, the development of the corona cases in China and aggressive closures until recently also affected the global supply chains and increased the uncertainty. In addition, the tight labor market creates inflationary pressure through an increase in wages.
In order to curb inflation, the central banks raised interest rates. In the USA the interest rate rose to its highest level since 2008 and reached 4.5%, in Europe the interest rate rose to 2%. The interest rate increase did not go unnoticed by Israel and the Bank of Israel raised the interest rate to the level of 3.25%. In view of these developments, the growth forecasts in many countries were revised downwards The International Monetary Fund lowered its global growth forecast and expects growth of 2.7% in 2023. In the US, the forecast is for growth of only 0.5%. In Europe too, growth in the bloc is expected to slow from 3.1% this year to only 0.3% in 2023. In Israel, the forecast is about 3.0% growth next year.
In view of the developments in the global and local economic arena and the behavior of the stock and bond markets, in our estimation, in 2022 a negative average return of approximately 8.0% was recorded in the general provident funds. The returns were due to the decline in rates in all the main investment avenues, and led by the stock markets in Israel and around the world. The dollar and the euro moderated the returns The negativity since this year saw a depreciation of the shekel against these currencies.
Summary of the year 2022
Our assessment: a negative return of 8.0% for the general provident funds.
My shareholding: 15.5%- (range of 13.0%-19.0%); Indices: 4.5%- (range of 3.5%- 5.5%); Shekels: 6.0%- (4.0%- 7.5%); Comprehensive pension for people up to 50: 5.3%- (4.0%- 9.0%); Comprehensive pension for 50-60 year olds: 3.8%- (2.0%- 7.0%); Comprehensive pension for those aged 60+: 2.6%- (1.5%- 3.5%).
The higher the proportion of shares in the various tracks was, the deeper the negative return was. The relatively moderate negative return of the pension funds compared to the provident funds/general training funds is due to the 30% designated bond protections which contributed a positive return of approximately 10%.
The stock markets in the world showed a very strong negative trend. In the USA: Strong price declines, with the S&P 500 down 19.2%, the Dow Jones down 8.6% and the Nasdaq, the technology stock index, down a particularly steep 33.0%. A negative trend was also recorded in Europe, but much more moderate, despite the war in Europe: the German DAX index fell by 11.4%, the French CAC fell by 8.1% and the Eurostoxx 50 fell by 10.4%.
In Japan: the Nikkei fell by 9.4%. The global index of developing markets fell by 22.3% (!), even after the sharp increase in November. All these are in currency terms of those countries.
In the stock market in Israel, a negative trend was recorded, but much more moderate than that recorded in the USA: the Tel Aviv 35 index fell by 9.2%, the Tel Aviv 125 index fell by 11.8%, the Tel Aviv 90 index fell by 18.2%, while The rest 60 decreased by a very sharp rate of 33.2%. A negative trend was recorded in the corporate bonds: the corporate bond index fell by 6.3%. The government bond index fell by 9.3% since the beginning of the year.
Summary of the month of December 2022
Meitav Dash’s assessment is that the provident funds and the large general training funds will present a negative average nominal return (gross) of 1.8% in December 2022. This expected return also represents the picture in the industry as a whole, where the range of returns for all the funds should range in a wide range between a negative return of 1.4% and a negative return of 2.5%.
In December, price decreases were recorded in all the main investment channels: in the stock markets in Israel and abroad, in the corporate and government bonds in Israel, and these acted as a negative factor for the fund yields.
A strong negative trend was recorded in the stock market in Israel: the TA 35 index fell by 2.8%, the TA 125 index fell by 3.8%, the TA 90 index fell by 6.1%, and the balance index 60 fell by about 6.5 %.
The stock markets in the world also showed a strong negative trend. In the USA: sharp price declines: when the Dow fell by 4.0%, the S&P fell by 5.7%, while the Nasdaq fell by a steeper rate of 8.6%. In Europe, a negative trend was recorded: the German DAX fell by 2.0%, the French CAC fell by 2.4% and the Eurostoxx 50 fell by 2.9%.
The Nikkei index in Japan fell by 6.9%. The global index of emerging markets fell by 1.6%. All these are in currency terms of those countries.
A negative trend was recorded in the domestic corporate bonds. The Tel Bond 20 index, the Tel Bond 40 index and the Tel Bond 60 index decreased by 0.3%, 0.9% and 0.6% respectively. The unrated bonds decreased by 1.1%. Bond Index General Corporation fell by 0.5%.
The government bond index fell by 1.2%, with the bonds attached to the index falling by 1.5%, while the shekel bonds fell by 1.1%.
5-year average (2017-2021) 7.3%
10-year average (2012-2021) 6.7%
Year 2021 14.3%
Year 2020 4.7%
2019 12.2%
2018 – 1.1%
2017 7.3%
2016 3.3%
2015 2.0%
2014 5.7%
2013 9.5%
2012 9.8%
**The author is Avi Berkovich Deputy Chief Investment Manager of Meitav Gamel and Pension Ltd.**