"There is a very strong sense among the public of success, at least in the first phase of the campaign," says Sarit Steiner, senior portfolio manager at Peilim Portfolio Management following the sharp gains on Monday on the Tel Aviv Stock Exchange (TASE). Looking ahead, Steiner continues to prefer the TASE over Wall Street. "Given the price levels, the Israeli market is currently more attractive for investment than the US market. After the war, assuming that the results remain good, Israel's macroeconomic data will continue to improve and even accelerate."

Steiner grew up with a father who served as deputy manager of a bank branch and worked in the capital market, and "This sparked a curiosity in me that over the years became a profession." She began her career at TASE member Poalim Sahar and has been managing investments at Peilim for 20 years.

She stresses, "The markets in Israel and the US are no longer trading at the comfortable pricing levels of the past, but there are still opportunities in sectors and specific stocks that have not yet reached their potential." Since the outbreak of the was in October 2023, the Tel Aviv 125 index has risen 127%, double the S&P 500 index. As for Israel, in her assessment, the 'post-war' phase will only help the Bank of Israel cut interest rates further, which it planned to do anyway. "There will be strong growth, led by private consumption and investments. The strong shekel and moderate inflation are expected to support the continued decline in interest rates."

And what about the rating of the Israeli economy? Steiner believes that "Assuming this is a successful campaign for Israel, the rating agencies will perhaps look at us a little differently, and consider raising the rating."

In the longer term, she also notes positively the transition to trading on Friday and the listing of cybersecurity giant Palo Alto Networks on the TASE. "Both of these are expected to increase the attractiveness of the local stock market in the eyes of foreign investors and inject new capital into it, along with a return from S&P 500-tracking options to general options, and a decline in the attractiveness of money funds as interest rates fall."

On the other hand, in the US, Steiner fears, "The high multiples in the technology sector, and also the massive investments in AI will not justify themselves economically in the near term, as well as 'sticky' inflation that could delay interest rate cuts. When you neutralize the AI sector, growth in the US economy looks much more moderate."

As for the bond market, she believes that despite the major capital gains that have already occurred in the past year (following the start of the decline in interest rates), "The bond market is still attractive. You can even now get a 4% nominal return, a very attractive level compared with other solid alternatives, such as the average return on rent." However, she suggests sticking to highly rated corporate bonds, since the yield spread on government bonds is at historic lows.

When it comes to offering a portfolio to a solid investor, Steiner allocates 18% to stocks in Israel and 12% to stocks abroad. In the bond component, it allocates 40% to corporate bonds and 30% to government bonds, with a slight bias towards shekels (60%) at the expense of the index-linked channel. The portfolio's average life span (average duration) is 5.5 to 6 years.

In the aggressive portfolio, she proposes allocating 30% to stocks in Israel and 20% to stocks abroad and the remaining 50% to corporate bonds.

On the local scene, Steiner thinks that the fall in interest rates will be good for sectors like income producing real estate, and renewable energy. "Reducing financing costs is expected to directly improve the profitability of companies in income-producing real estate and lead to revaluation gains.

"At the same time, the expected accelerated growth in the economy will support demand for offices and improve revenue in shopping centers," she thinks. On renewable energy, she explains, "The decline in interest rates improves the profitability margins of projects, while the reduction in the cost of solar panels and storage has already established the sector's competitive advantage over conventional power plants. In the long term, in my opinion, the continued trend of falling costs will only expand this advantage and accelerate the integration of green energy into the global production mix."

Another area she recommends in Israel is natural gas partnerships. From her perspective, they are "A solid anchor in the portfolio, thanks to stable cash flow based on long-term contracts, with the expected increase in the volume of gas exports from Israel strengthening their position." Finally, she recommends exposure to chip stocks in Israel, as "The sector offers a combination of test and measurement equipment companies such as Nova and Camtek, and manufacturing companies such as Tower. This allows for diverse exposure to the value chain of the global chip industry, through leading Israeli companies."

Abroad, Steiner focuses on three sectors. The biopharma sector is attractive in her assessment in terms of multiples (i.e., cheap relative to other sectors), and "Benefits from a tailwind from demographic trends such as the aging population and the success of weight loss drugs. Additional potential lies in the integration of AI into research processes — if the technology manages to improve the chances of success in drug development, the sector may be one of the main beneficiaries of the revolution."

Overseas, she also suggests exposure to the chip and hardware sectors, as "They are the direct and immediate beneficiaries of huge investments in infrastructure and hardware by the tech giants." And finally, it is impossible not to return to wars, which is why she mentions the defense industry, stressing the growing need for armaments in European countries and those bordering China. The sector will continue, in her estimation, "To exhibit stable and strong growth in the long term."

And what about the shekel, which is trading at less than NIS 3.08/$, a record high in decades? Here, Steiner believes the local currency "Will continue to demonstrate strength and remain around current levels, and perhaps even strengthen slightly. This is due to the current account surplus, increasing gas exports and exits by high-tech companies, as well as gains in the US market." What could change the direction is "sharp declines on Wall Street," or if "the Bank of Israel surprises by cutting interest rates more aggressively than expected, to weaken the shekel and help exporters who are suffering from the strong currency."