We believe that trading on the TASE will be affected primarily by the trading trend overseas and against the background of the commencement of the Q1/13 financial statements publishing season. The economic policy being consolidated and the final approved budget will also influence trading, albeit not over the short term. These are likely to have a negative effect on both private consumption and the profitability of companies in the economy. It should also be noted that the recent interest rate cuts in Europe and Australia are evidence of the continuing global economic weakness, which is likely to affect performances in the domestic economy, primarily through exports.
Over the short-term, government channel trading is expected to perform similarly to the US trend, against the background of the low inflationary environment and the anticipated short term bank rate stability. We believe that the continued raisings trend in the government channel and narrowing of the spread between domestic and US government bonds intensify the risk over the long average anticipated lifespan. Consequently, we still recommend holding a short-medium average anticipated lifespan in the government segment of the portfolio and are shortening the average anticipated lifespan range of an investment in the indexed government channel by one year. The absorption of liquidity through the average anticipated lifespan on the one hand and the tax and government expenditure hikes on the other hand, have contradictory effects on the inflation rate. Consequently, with a view to the medium-long term, we still recommend maintaining a balanced mix between the channels.
The yield levels in the corporate channel, especially in the high investment rated series, are low and, in many instances, do not fully reflect the medium-long-term risks embedded in them. In view of the aforementioned and taking the raising trend in mutual funds into account, we recommend focusing on series of companies with cash flows with short average anticipated lifespans (up to 3 years) and exploiting the trend to reduce exposure to companies that depend on refinancing debt.
Incoming capital movements and the effects of the commencement of gas production in Israel are expected to result in pressures to revalue the shekel's exchange rate. On the other hand, the BoI's intervention in forex trading indicates its commitment to prevent any substantial additional strengthening of its exchange rate. In view of the aforementioned, we believe that the shekel will continue to be traded around its current exchange rate.
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