Goldman Sachs has amended its predictions on the Israeli stock exchange for 2001. The bank now predicts that Ariel Sharon will win the special prime ministerial election on Tuesday February 6, and that stocks listed on the TA-100 index will gain 25%. Last week it predicted a 35% gain for TA-100 stocks in 2001.
Goldman Sachs believes the odds that Sharon, leader of the opposition Likud party, will establish a national-unity government with the One Israel party, are 70%.
The bank further predicts that a national-unity government will try to make progress towards peace, which will avert substantial change in the exchange rate of the shekel.
As for the Tel Aviv Stock Exchange, Goldman Sachs has lowered its sights. From forecasting a 35% gain for stocks listed on the TA-100 index, the bank now foresees a gain of 25%, based on unexpectedly low growth statistics. This year economic growth is expected to be 3.5%, rising to 6.1% in 2002.
The main effect on Israeli stocks:
In the case of a Sharon win followed by establishment of a national-unity government, Goldman Sachs says, the parameter that will affect Israeli stocks the most is the American marketplace, mainly the pace of interest rates cuts. Goldman Sachs' forecast on the American market is very optimistic. The bank sees the S&P-500 index reaching 1,650 points by year-end, reflecting a yield of 22%.
However, if Sharon wins but establishes a narrow coalition with far-right and religious parties (a 30% chance, says the bank), Goldman Sachs foresees the Israeli and American economies detaching, leaving the TASE to be affected by mainly domestic parameters.
And on the shekel
The bank predicts that the shekel will trade at NIS 4.20 over the coming three months. By year-end Goldman Sachs sees the dollar at NIS 4.10.
Goldman Sachs believes that the Federal Reserve Board may continue to lower lending rates in the United States, in order to avert recession.
If the Fed does continue to lower American interest rates, the interest rate gap between Israel and the U.S. will widen, Goldman Sachs says. A growing gap could bolster the shekel, because the Bank of Israel is not likely to lower interest rates in Israel as fast as the Fed.