Israeli mutual fund withdrawals moderate, after public withdraws NIS 8.5bn. In february

The Israeli public has this month continued to remove money from mutual funds that track local securities, albeit at a slower pace, after pulling NIS 8.5 billion ($2.37 billion) from the local stock exchange in February for to invest in overseas funds amid concerns that the government’s plans to weaken the judiciary will hamper economic growth.

“We see daily withdrawals of between NIS 100 million and NIS 150 million from mutual funds and exchange-traded funds (ETFs) that track local stocks and bonds,” Yaniv Pagot, EVP head of trading at the Tel Aviv Stock Exchange told The Times. Israel Thursday. “This is worrying and there is concern among citizens, but there is no real panic on the screens.”

“The volumes or amounts are not what we saw during global financial crises or during the COVID-19 crisis,” Pagot added.

Concerns have grown among investors that the proposals to limit the judiciary’s power could have a negative impact on Israel’s sovereign credit rating, which would in turn damage the country’s thriving economy and currency and trigger an outflow of funds. Israeli tech unicorn Riskified is the latest local company to announce it will transfer $500 million out of the country and is offering a limited number of relocation packages to interested employees.

During the month of February, the Israeli public sold funds from ETFs tracking Tel Aviv stocks and bond indices and moved to ETFs tracking international bond indices and the S&P 500 index. The public sold about NIS 1.8 billion in ETFs, mainly tracking the TA-125 and TA-35 indexes, and NIS 0.7 billion in ETFs tracking corporate bond indexes, according to Tel Aviv bourse data.

In the mutual fund market, the trend strengthened in February from the previous month as the public accelerated withdrawals, pulling NIS 4.3 billion from funds tracking Tel Aviv bonds, up from the NIS 2.5 billion in redemptions in January. In contrast, about NIS 1.5 billion was poured equally into funds tracking foreign stocks and bonds, which was nearly five times the amount injected into those funds during January, the exchange said.

Yaniv Pagot, EVP, Head of Trading at the Tel Aviv Stock Exchange (Credit: Nicky Westphal/Courtesy)

“The trend of trading on the TASE was affected by increasing disagreement about the impact of the planned legal reform on the Israeli economy, following the trend of trading in recent weeks,” TASE said in its monthly trading report for February.

Last month, the Tel Aviv Stock Exchange’s benchmark TA-125 index fell about five percent, while the TA-35 index of blue-chip companies fell about 4% after being unchanged in January, according to TASE data. The TA-90 index, which tracks the stocks with the highest capitalization not included in the TA-35 index, fell 9% in the same period after rising 1.7% in January. In February, the MSCI Global Index fell by around 2%.

But last week, Israeli markets saw some moderation in the trend after Israeli President Isaac Herzog spoke of “advanced steps towards a compromise on the planned legal reform, following the intensification of disagreements in recent weeks,” the Tel Aviv Stock Exchange said.

That’s after the shekel fell 6% against the US dollar in February, trading at its weakest level in three years. It started to stabilize in the first few days of March.

“In recent days we have seen some signs of optimism,” Pagot said. “The market is pricing in a 20% to 30% chance of a compromise.”

In such a scenario, the market may be poised for a recovery as Israel’s economic fundamentals are intact, Pagot added.

Tel Aviv stock exchange data from last week showed that the trend that marked recent weeks reversed in the ETF market after the public sold NIS 1.45 billion in funds that tracked stock and corporate bond indexes on the TASE since early February . In the week ending March 9, the public bought ETFs, mainly funds tracking the TA-35 and TA-125 indexes and ETFs tracking local corporate bond indexes, for an amount of NIS 250 million.

During the same period, the public continued to buy ETFs that track international stock indices, mainly funds that track the S&P 500 index, equivalent to NIS 100 million.

In the mutual fund market, last week the public withdrew a total of NIS 550 million from funds tracking TASE stocks and bonds and poured NIS 70 million into funds investing in bonds and stocks abroad.

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