Israel’s Thriving and Diverse Economy
TOM BUTCHER: Steven, what do the latest GDP figures tell us about the Israeli economy?
STEVEN SCHOENFELD: The Israeli economy is firing on all cylinders. There was a slight slowdown late last year and early this year, but the latest second-quarter GDP figures shows growth at 4% pace, and first quarter figures were revised upward. Israel is humming along at around 3.5%-4%, which is probably among the highest in developed markets. The economy is doing so with minimal inflation, but a little bit of inflation, which is what many central banks are trying to encourage. Israel’s labor market is strong, and most economic sectors are doing well. Among developed and emerging markets, Israel has certainly been one of the best-performing economies.
BUTCHER: How much do exports contribute to GDP?
SCHOENFELD: Israel has a very well-balanced economy. Exports are about 30% of the market. It is heavily tech oriented, but it also has strong consumer goods, industrial goods, agriculture, and diamonds, as examples. Israel’s economy covers a broad swath of industries, and although it was once very much focused just on Europe and the U.S. for exports, Israeli exports a huge amount to India, China, and other emerging markets. This means that Israel’s trade patterns are very balanced, as well.
BUTCHER: Looking at the various sectors of Israel’s economy, which are the largest and which are the fastest-growing?
SCHOENFELD: The Israeli economy’s largest sectors are pharmaceuticals, industrials, and technology. The Index that we produce, the BlueStar Israel Global Index® (BLSNTR), has very good exposure to all of these sectors. Right now, the fastest-growing sectors in Israel’s economy are heavily domestic-oriented like consumer products, and some manufacturing. But we expect a recovery in the other export sectors and technology.
BUTCHER: Where else should investors look?
SCHOENFELD: We feel the most important thing is that investors simply look at Israel. Because Israel is such a small weight in the developed market benchmarks, many investors have insufficient or almost accidental underexposure to Israel. We feel that when you look at the strengths of the Israeli economy, and the impact of Israeli companies around the world, it makes sense to not ignore Israel. We think most investors should have an exposure. Of course, we have built the BlueStar Israel Global Index to give good exposure to the full range of Israel's economy and its economic growth potential.
BUTCHER: Many people refer to Israel as the "startup nation." Can you tell me a little bit more about the technology sector in the country?
SCHOENFELD: Israel, even though it's a small country, has one of the most dynamic technology ecosystems in the world. Whether you are talking about cyber-security, the internet of things, software, there are Israeli companies that are leaders in these fields. Most other indices do not give full exposure to this breadth of technology. By contrast, the BlueStar Israel Global Index has about 30% exposure to technology. We believe strongly that an investor looking at Israel and seeking exposure to its dynamic tech ecosystem, should have that level of allocation.
BUTCHER: I understand also that Israel is well-known for its pharma companies. Can you tell us a bit more about this?
SCHOENFELD: Israel is one of the leaders in biotech, medical tech, and pharmaceuticals. Two of the world's leading generic pharmaceutical companies have an Israeli component: Perrigo and Teva Pharmaceuticals. Both of these companies are constituents of the BlueStar Israel Global Index. Almost every consumer uses some products from either Perrigo or Teva; just look carefully at the product’s label and you are likely to see one of these logos.
BUTCHER: So they span across the full breadth of pharma?
SCHOENFELD: Yes. Although the big well-known pharma companies in Israel are generic drug manufacturers, there are smaller Israeli companies that are cutting-edge in robotics that allow paraplegics to walk, for example, or medical devices that allow you to skip a colonoscopy. All of these innovative technologies have very firm roots in Israel, both because of the companies and the university system in Israel, which has a huge amount of R&D [research and development] exposure.
BUTCHER: Are there any other sectors, besides technology and pharma, in which Israel is known as an innovator?
SCHOENFELD: Israel has innovative companies in almost every sector. Certainly in the defense sector: Israeli companies like Elbit Systems, which designs the smart helmet for the F-35 fighter plane. In consumer products: SodaStream has entered the market very broadly in the United States and is now very popular among consumers. Even countertops in kitchens: Caesarstone found a new technology to develop quartz tabletops that are as good as marble and even more durable.
BUTCHER: Steven, thank you very much.
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