The U.S. and China are the world’s two largest economies, and each are posting impressive rates of economic growth this year, but investors looking for other fast-growing economies shouldn’t sleep on Israel.
Data confirm the Israeli economy, which is known as a hotbed of technology innovation, is rebounding in impressive fashion from the 2020 coronavirus trough.
“The Israeli economy contracted by 2.6% in 2020 due to the Covid-19-related restrictions imposed from 2Q20 and is forecast to grow by 5.1% and 5.7% in 2021 and 2022, respectively,” said Fitch Ratings in a recent note. “The economy has been more resilient to the pandemic shock than many rating peers, reflecting the strong performance of high-tech industries and the early and fast progress in vaccination.”
Home to 59 stocks at the end of the second quarter, IZRL is reflective of Israel’s status as a bastion of technology innovation. That sector accounts for a whopping 48% of the ETF’s weight.
Not only does that significant allocation to tech stocks make IZRL exceedingly relevant as a backdoor play on booming cybersecurity spending, it levers the ETF to Israel’s export story and its improving fiscal position.
“Israel’s strong external balance sheet has been resilient to the pandemic. Israel has recorded current account surpluses (CAS) each year since 2003, and the surplus increased to 5% of GDP in 2020,” according to Fitch. “Fitch expects on average 4% of GDP CAS during 2021-2023 as services exports growth remains robust, driven primarily by high-tech sectors.”
Beyond technology, IZRL has a 24.3% allocation to the healthcare sector, a potentially attractive trait because Israeli healthcare companies are innovators focusing on disruptive concepts. Two other factors highlight the allure of IZRL. First, Israel is only lightly featured in traditional developed market indexes. Second, the country is a credible destination for environmental, social, and governance (ESG) investors.
“Israel has an ESG Relevance Score (RS) of ‘5’ for Political Stability and Rights and ‘5[+]’ for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption,” concludes Fitch. “Theses scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in our proprietary Sovereign Rating Model. Israel has a high WBGI ranking at the 71st percentile, reflecting its long track record of peaceful political transitions, strong institutional capacity but unstable governments, effective rule of law, low level of corruption and its hostile external environment.”
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.