According to the report, the shekel remains undervalued against the dollar as well as against the euro. It concludes that Israel's economy has the strength to withstand a global slowdown.
"Imbalances in the US economy and the dollar’s depreciation have become an overwhelming theme in global financial markets, triggering significant shifts in portfolio allocations," Morgan Stanley analyst Serhan Cevik wrote. "However, although the dollar is likely to remain weak in the near future, our currency economics team expects it to get stronger toward the end of this year and especially in 2008. Of course, such a turnaround in the dollar’s valuation and the reasons behind it would have a range of implications for Israel’s economy and financial markets. Nevertheless, we do not see a major risk to our call for the shekel’s continuing strength."
"The dollar’s weakness may have been a trigger, but the shekel’s appreciation is certainly not just about what has happened to the dollar. As we have long argued, the shekel is fundamentally undervalued against the dollar and even more so against the euro. Therefore, we still expect economic fundamentals and financial developments to keep supporting the shekel and the country’s domestic assets. Israel has the strength and dynamism to weather a global slowdown.”
The report deals with the technical results of the increased privatization of government-controlled industries, and analyzes the stability of the shekel in light of the Israeli high-tech boom and the resulting interactions with the global market. (Click here to read a more in-depth report on the shekel’s strength)
The report concludes, “Despite geopolitical constraints and indeed the eruption of a guerilla war in Lebanon, the Israeli economy has continued to grow at a robust pace.”