View from City Road: Israel emerges as good investment

The fashion for investing in emerging markets is sweeping New York and London, perhaps a good reason for scepticism. The attractions of China, Turkey or Mexico are that their economies are growing at an extraordinary rate, delivering astonishing corporate earnings growth. The snag, as generations of wealthy Britons and Americans have found, is that it is not always easy to translate those mouth-watering returns into hard currency. Politics often intervene even if exchange controls do not.

One of the better investment bets, though, is the Israeli economy. Growth is spectacular: business sector output has risen by more than 7 per cent a year in each of the past three years, and the economy, far from overheating, delivered a halving in the inflation rate from 18 per cent in 1991 to 9.4 per cent in 1992.

The economy has proved so flexible that it has been able to absorb a 7 per cent rise in the labour force in one year with just a 1 percentage point increase in the unemployment rate. Russian Jewish immigrants are well-educated, and often of a high technical competence.

The payments balance is satisfactory, exports are booming, and Israel has almost unique free access for industrial goods to both US and European Union markets. Add to this the prospect of renewed direct investment thanks to the peace process, and the economy looks a very good investment.

However, the stock market is highly volatile and investors in some of the high-tech companies listed in New York have been disappointed. One way to spread the risk is the First Israel Fund, a closed-end management investment company quoted in New York, analagous to our investment trusts. Run by BEA Associates, a long-standing Wall Street fund manager, the fund was launched last year to raise dollars 75m at dollars 15 a share. Having traded as low as dollars 11 5/8 , it has bounced back to nearly dollars 15 5/8 . It should go far higher for those with the patience to hold for a year or two.

Money, page 48