Rapid Israeli Vaccine Rollout Boosts Hopes for Early Economic Recovery

Introduction

Since vaccinations against COVID-19 were first introduced, Israel has led the way in inoculating its population. As of early February, 20% of the Israeli population has been fully vaccinated, with another 15% ready to receive their second shot by mid-February. At this rate, the Jewish state is set to have half of its population vaccinated by the middle of March.

This development, coupled with the impending end of the country’s third lockdown, has raised hopes of an economic recovery. Are these hopes realistic or could they be premature?

Reasons for Optimism

When Israel’s vaccine program was first rolled out, there was significant optimism reflected by upward moves for Israeli stocks. Chief economist for Bank Leumi (Israel’s second-largest bank), Gil Bufman predicts 4.9% growth in the Israeli economy for 2021 and perhaps up to 7% if the vaccination campaign leads to a successful result.

Jonathan Katz, the macroeconomic strategist for Leader Capital Markets Ltd., discusses a revision upward in projections for the Israeli economy in 2021. Initially, projections were for a lackluster first half and a robust second half.  However, given the unexpectedly-strong rate of Israeli vaccinations, Katz says the predictions are now for strength starting as early as the beginning of the second quarter.

Israeli’s vaccination program and rosy economic outlook have created a boost in Israeli stocks.

A graph illustrating the market summary for BlueStar Israel Technology ETF

The BlueStar Israel Technology ETF (ITEQ) started the year at $67.07 has risen steadily to $74.65 (as of February 4, 2021), an increase of over 11%.  The ETF is currently trading at the apex of its 52-week range, which had a low of $29.62 during the height of the COVID-19 market crisis in March 2020.

A graph illustrating the market summary for Ark Israel Innovative Technology Etf

Ark Israel Innovative Technology ETF (IZRL) started the year at $29.53 and has risen steadily to $34.31 (as of February 4, 2021), an increase of 16%.  The ETF is currently trading at the apex of its 52-week range, which had a low of $14.00 during the height of the COVID-19 market crisis in March 2020.

 

Will There Be Obstacles to Recovery?

While there are certainly firm indicators of recovery in both vaccinations and equity valuations, given the upward movement of Israeli stocks and positive economic projections, there may still be reasons for caution.

First, despite the number of people who are being vaccinated, Israeli infection rates are still relatively high.  This is primarily due to widespread flouting of restrictions, as well as new strains of the virus, which could have infected some people prior to their receiving a vaccination. In January, Israel experienced 1,400 fatalities from COVID-19, a third of the total losses since the pandemic crisis began.

Second, Israelis continue to have political disagreements over lockdown measures, resulting in many citizens skirting restrictions.  This “pandemic fatigue,” combined with the more contagious South African and English strains of the virus, may indicate that COVID infections in Israel could remain high for some time.  Meanwhile, the Israeli travel industry will continue to be locked down and is not expected to bounce back any time soon.

All of these factors may result in a slower-than-expected economic recovery.

 

Tech Strength and Long-Term Growth

Even if Israel’s economy does not snap back as quickly as many have hoped, its economy is likely to open faster than that of other countries, given its successful vaccination program. Recovery may not come as early as March for Israel, but the country likely has a head start on the U.S. and much of Europe.

It should be noted that Israel’s tech-oriented ETFs has shown particular strength. The silver lining of the pandemic is that growth in eCommerce, work-at-home and homeschooling through Zoom have been a boon to the tech industry. Whichever way the COVID-19 crisis goes in the spring, tech is likely to continue its growth.  This is good news for Israeli startups as these are mainly in the tech and biotech industries.

Investing in Israeli Stocks

We all hope that Israel’s highly-successful vaccination program leads to an equally successful economy recovery.  However, even if Israel’s economic recovery doesn’t proceed with a continuously upward trajectory, its economy is certainly having a good start, particularly in the tech and biotech sectors.

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