13 April, 2016

Quora Answer: Are Israeli Bonds a Good Investment?

The following question was asked on Quora and answered on the 30th September, 2015.

Answer: Please note that this is my personal opinion, and others may differ.  The short answer is no, not really.  Unless you feel a particular affection for the country, there are far better options elsewhere.

Firstly, we must consider the geopolitical situation that Israel is in.  To put it succinctly, they are in a troubled neighbourhood.  Secondly, the Israeli government is a coalition government.  They have had a recent bout of instability, and this is expected to continue for a while.  The extreme righting Likud coalition has only a one seat majority.  These two factors alone create concern.

Secondly, much of the Israeli economy is propped up by the US through massive aid.  Considering the state of the US economy, and the real possibility that the next president will be very much to the left, there is a small possibility that aid will be reduced, or at least become conditional.

Thirdly, the state of the Israeli economy itself is not very strong.  GDP growth slowed in 2014, and although there is a projected slight rise for 2016 by some analysts, continued volatility in the region will affect the state of future projects.  The official unemployment rate is 5.3%.  But when we factor underemployment and consider youth unemployment, the numbers are worse.Unofficially, and mostly unacknowledged, 20% of Israeli Jews live below poverty.  What does that say about the state of the economy?

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