The assault on Middle East stocks has been two-pronged with the global equity rout and lifting of Iranian sanctions weighing heavily on sentiment throughout the region. The Tel Aviv 25 (TA-25), which was among the better performing instruments compared to global indices in 2015, has gotten off to a rough start in 2016 as concerns about the pace of global trade combined with a potential rising threat in the east threaten to derail a four year bull market in Israeli equities. However, accommodative monetary conditions, a weakening shekel and rising exports especially in the technology space might be enough to see the TA-25 outperform other global benchmarks over the medium-term as external conditions deteriorate further.

tel aviv 25

Global Exposure

The startup nation hosts an incredibly diverse economy, evident by the composition of the Tel Aviv 25 equity index which is comprised of Israel’s largest blue chip stocks. Although the economy is relatively insular considering its geographic disposition and limited trade with neighboring countries, the reach of the nation is global, especially with rising exports and growing emphasis on emerging markets in the east like China and India. A focus on worldwide diversification and influence on technology that has become a part of nearly every mobile device has made the region indispensable from a trade perspective.

In many ways, this very exposure to economies around the world and lack of dependence on a single marketplace will help local companies weather the storm brewing in Asia. Strong trade relations with Europe and North America may help to offset the decelerating growth in eastern markets to a degree, and in general the local economy remains a robust source of demand for listed companies. Most importantly however remains the ability to innovate, a core tenant of the nation’s appeal to international investors. Nevertheless, the potential for the security situation to worsen on the heels of the lifting of Iranian sanctions has weighed heavily on sentiment as evidenced by the selloff that transpired immediately after.

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