Investment manager recommends two sectors: "I don't think the market is expensive"

Dan Binshtok (38) has been working at Pealim Investment Portfolio Management (belonging to Bank Hapoalim) for 13 years and currently manages the foreign client desk. The capital market has been in his blood for as long as he can remember.

"I grew up in a banker's house," he says, "we always had subscriptions to all the economic newspapers. Out of curiosity, I would take the newspapers and read them since I was a child." This curiosity drew him into the financial world, where he found his calling in investment management. "I was always interested in how the market is dynamic and changing," says Binshtok. "If you are not updated for a week, you have a gap. It is impossible not to be updated all the time." This dynamism is not only a challenge, but also an opportunity for him, as "things that change quickly can also generate money."

Despite the strong run of the local stock exchange in recent years and the relative weakness in recent months, Binshtok suggests not reducing exposure to the local market. "It is reasonable to be in Israel now, not underweight," he says. To reinforce this, he notes that Israel's growth, according to the Bank of Israel, will stand at 4% this year and accelerate to 5.5% next year. Inflation in Israel is also on the decline and stands at 1.6%.

"This is different from the world. The strengthening of the shekel against the dollar also supports this, so the interest rate will continue to fall to 3%, and this will support the economy's growth engines," he explains. Regarding the upcoming Knesset elections, he suggests treating them as background noise: "Until the elections, one should ignore all the promises that will be made. The moment the next government is formed, we will want to see its economic plans, how Israel will manage to recover from the geopolitical processes that have happened here in recent years, and how to return to a reasonable deficit path."

Fears US debt: could have a negative impact

As for the USA, Binshtok estimates that the market can still continue to rise, even after nearly 4 strong years with double-digit returns. "I am very optimistic when looking ahead. I don't think the market is expensive. We see a 25% increase in company profits. Also for next year, analyst forecasts speak of double-digit profit growth. The companies have shown strong growth, not only technology companies by the way, and one can start to see a hint of return on investment (ROI) in artificial intelligence."

He estimates that we will not see interest rate hikes in the USA this year, "at most one hike in the worst case, and even that is already priced into the markets." This is despite the hawkish line signaled by the new Fed Chair Kevin Warsh, who aims for a 2% inflation target.

However, one concern does exist according to Binshtok: the high American debt, which is already approaching 40 trillion dollars. "The yields to maturity on 10-year and 30-year US government bonds have risen to levels of about 4.62% and 5.17% respectively. This rise in yields makes the cost of debt raising for the US government more expensive, and at the same time rolls over into an increase in mortgage interest rates for households. Continued rise in yields could trigger fears of a debt crisis and negatively affect the direction of the markets."

The recommendations: renewable energies and chips

Binshtok suggests high exposure to Israel and divides the equity exposure equally between Israel and the world. For a solid investor, he recommends 15% in stocks in Israel and 15% in stocks in the world, 40% of the portfolio in corporate bonds in Israel and 30% in Israel government bonds. The portfolio duration stands at 4-5 years.

For an aggressive investor, he suggests an exposure of 35% to stocks in Israel and 35% to stocks abroad, foregoing government bonds in favor of 30% in corporate bonds in Israel.

Regarding sectors, Binshtok highlights:

1. Renewable energies: "The sector is currently enjoying a double tailwind: a jump in peak demand for electricity against the backdrop of the AI revolution and a drop in the prices of panels and storage systems."

2. Technology and chips: "The sector provides diverse exposure to the value chain of the global chip industry." He notes that chip and hardware companies are the most direct beneficiaries of the huge demand for infrastructure investments from technology giants.

3. Cyber field: "The development of AI leads to a wave of hacks, which requires huge investments in security products."

4. Financial sector (abroad): "The high interest rate environment of the Fed keeps the interest margin of banks at a high level. In addition, the Trump administration is characterized by a very lenient de-regulatory approach, which constitutes an additional tailwind for the sector."

5. Industrial sector: "The Trump administration is promoting a tariff policy that incentivizes companies to establish local production lines in the United States, thereby accelerating the demand for heavy equipment and automation systems."