How were the indicators chosen?
These are indicators for which there is a consensus of experts that they reflect the degree of economic risk of a country. In order to arrive at the picture as reliably as possible, we chose comparative indices from diverse fields and those that have proven themselves in the past as predictors of risk.
The data in the graphs is correct as of February 8.
Shekel against the basket of currencies
What do you see in the graph: An increase in the graph reflects a weakening of the shekel, and a decrease indicates a strengthening. The weakening of the shekel may reflect a weakening of the economy. The comparison of the shekel yield to the yield of the basket of currencies is intended to neutralize effects that arise from the movement of the dollar against the rest of the world’s currencies.
What changed? The strength of the basket of currencies shows signs of a jump in relation to the shekel. This means the continuation of the weakness of the local currency. The foreign currency is the closest figure to a kind of economic EKG, it measures the intensity of the “nervousness” of the investors. A significant transfer of funds abroad is quickly expressed through this indicator.
Lucid Capital’s bottom line: “The Israelis continue to convert shekels into foreign currency and this is clearly evident in the weakening of the shekel.”
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The yield gap between the Ta-125 index and the Nasdaq
What do you see in the graph: The return of the TA 125 index in relation to the return of the Nasdaq 100 index (NDX) since the beginning of the year. The choice of the NASDAQ index stems from the dominance of the technology sector in the Israeli economy and its great influence on other sectors such as the yielding real estate prices.
What changed? In a weekly summary, it is possible to notice the deepening of the short yield of the TA 125 index in relation to the NASDAQ index.
Lucid Capital’s bottom line: “The short yield of the cell 125 index intensified this week, led by bank stocks and stocks exposed to the local market. This can be explained by the words of a chief investment manager at one of the institutional bodies: we are diverting the new deposits to Wall Street.”
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yield spread in government bonds
What do you see in the graph? The spread between the US government’s 10-year bond yield and the Israeli government’s 10-year bond yield in the last three months. The more negative the spread in the graph (the Israeli government’s bond yield is lower compared to the American equivalent), Thus, confidence in Israel’s economy is higher.
What changed? The past week shows the possibility of the beginning of a negative trend. The trend mainly shows an approach to American yields, meaning an increase in the risk level of the Israeli government’s debt. This indicates an increase in fear on the part of investors.
Lucid Capital’s bottom line: “This week was relatively quiet, but the continued weakening of the shekel could exacerbate the pressure on the Israeli government’s bond yield.”
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(credit default swap) CDS
What do you see in the graph: The CDS (or credit default swap) is an insurance policy that allows the holder of the bond to protect himself against the bankruptcy of the bond issuer. According to the graph, which shows the CDS cost of an Israeli bond, the higher the CDS cost, the greater the risk of bankruptcy of the Israeli government in the eyes of the market.
What changed? The jump registered in this important figure towards the end of January shows an increase in the level of investors’ concerns regarding the government debt. However, in the past week there was a clear erosion, which shows a positive trend of increasing investor and creditor confidence.
Lucid Capital’s bottom line: “After the step jump a week ago, Israel’s debt risk continues to be low in a 5-year perspective but at a one-year high.”
Main insights
1. General: “The big story last week was the shekel conversions to foreign currencies. One of the foreign bodies told us this week: ‘We opened accounts in the last month like we haven’t opened in the last five years.'”
2. Shares: “The institutions show a lack of appetite to invest or purchase shares in Tel Aviv. This is probably the factor that is deepening the gap between the Tel Aviv 125 index and the Nasdaq.”
3. The CDS ratio: “This is a significant and important economic barometer that is at record levels for a year. But still, when you look at it from the point of view of the last decade, it is at a low level from this point of view.”
Written by Shahar Cohen, founder of the global technology investment fund Lucid Capital
Full disclosure: The project is a systemic collaboration with Lucid Capital, which manages investment funds in Global Technology Ltd. The company or its employees may hold or sell the securities mentioned. This is not intended to be a substitute for investment advice by a legally licensed investment adviser who takes into account the data and the special needs of each person.