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Positive Economic Surprises in 2013 

Israel’s GDP Growth in 2013 

STEVEN SCHOENFELD: Israel's GDP has continued to perform well during 2013 and is on track to deliver about 3.5% annualized GDP growth. The third quarter was a little slower (about 2.5%), but it followed a surprisingly strong second quarter with growth over 4.5%. We believe that the estimates that have come out of the OECD projecting a full year of around 3.6% growth should be on target.  The OECD is also forecasting 3.5% growth for 2014 and 2015. What we've learned over the course of 2013 is that there have been positive surprises in the economy, both because of fiscal discipline, greater tax receipts, and the fact that energy exports are starting to come online.  We’re very positive on the Israeli economy.

Sound Fiscal Management

SCHOENFELD: Israel has had incredibly sound fiscal management. Even while managing within its budget constraints, Israel has had some one-off tax benefits and some stronger-than-expected economic growth where the government felt the economy was going to contract but revised its outlook and pursued an expansionary policy.  Consequently, the macroeconomic outlook is very strong.  Fitch most recently gave Israel a positive outlook, which is generally the first step toward an upgrade.  All other credit agencies have Israel on a positive outlook, and the macroeconomic picture looks good to us. < /p>

Update on the Shekel

Israel has what I like to call the high-class problem.  Because of its sound fiscal policies, positive trade balance, and its shift from being an energy importer to an exporter, there's been a lot of upward pressure on the shekel. This is a positive sign for the economy but hurts Israel's exporters.  The central bank has been very focused on trying to cap the rise of the shekel and have seen success.  They've held it at about 3.5/3.55, and they recently installed a new central bank governor, Karnit Flug, who used to be the deputy governor is committed to this policy.  There is still the risk of a stronger shekel but it has been held in check the past few months.

Structural Reform in Israel

SCHOENFELD: Israel is in the middle of major structural reforms in a number of sectors in its economy.  The housing market is one example; there's a real shortage, prices are very high and that affordability affects the middle class. The government is pursuing housing market reform.  They're pursuing labor market reform, in particular, trying to attract the ultra-Orthodox and the Arab sector into greater employment.  They're also pursuing capital markets reform, which is a very important foundation for their stock and bond markets.  

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Please note that Van Eck Securities Corporation offers investment products that invest in the asset class(es) included in this video. Investments in Israeli securities are subject to, 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. Israel’s relations with the Palestinian Authority and certain neighboring countries such as Lebanon, Syria and Iran, among others, have at times been strained due to territorial disputes, historical animosities or security concerns, which may cause uncertainty in the Israeli markets and adversely affect the overall economy. Furthermore, Israel’s economy is heavily dependent upon trade relationships with key counter parties around the world. Any reduction in these trade flows may have an adverse impact on the Fund’s investments. 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 and tend to have narrower product lines, fewer financial resources, less management depth and experience and less competitive strength. A concentrated investment in Israeli securities may be subject to greater volatility than a more diversified investment.

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