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Economic Trends in Israel 

STEVEN SCHOENFELD: Last year (2014) was a good year for Israel, especially considering the geopolitical situation in the region. Economic growth is likely to come in at around 3%. Inflation was muted at around .5% and the government maintained its fiscal discipline, despite having to fund a war with Hamas in Gaza.

Israel has very low unemployment. It's probably going to end 2014 at 6% and we believe it's very likely to drop below that during 2015; people are expecting 5.7%-5.8% unemployment.

Inflation has been low and, based on index-linked yields, is expected to remain low. Index-linked yields are a good way to see where inflation is going. Additionally, the currency finally weakened. The government has been trying to weaken the currency for a while. In the last four months of the year the shekel dropped from about 3.4-3.5 shekels to dollars to almost 4 shekels to the dollar. This is something the government has wanted and we think it's going to help exporters.

One of the biggest challenges for the Israeli public and the Israeli government is the high cost of real estate. Young couples can't afford new apartments. Israel is a small country and there is very limited land. The government has tried a number of initiatives to create more supply in the market. Nothing worked in 2014. However, in 2015 and 2016 there are a number of government initiatives that could have an impact. The biggest is the relocation of major government and military installations from the center of the country to the Negev Desert. This is going to open up land in the center of the country, which will then be released and sold to developers, which should affect supply in coming years. It will not have an immediate impact but the solution set is in place and I think it gives us some hope for this challenge to be addressed.

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Important disclosure for Market Vectors Israel ETF investors: The Fund is subject to elevated risks, including those associated with investments in foreign securities, in particular Israeli issuers, which include, among others, greater market volatility, the availability of less reliable financial information, higher transactional and custody costs, taxation by foreign governments, decreased market liquidity and political instability. In addition, companies with medium and small capitalizations are subject to elevated risks, which include, among others, greater volatility, lower trading volume, and less liquidity than larger companies. Finally, the Fund is non-diversified and concentrated, which may subject it to greater risk than a more diversified investment.

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