Bank of Israel to Double Equity Holdings

Bank of Israel is planning to almost double equity holdings by end of 2013 as declining bond yields prompted the Central Bank for investing into the European shares for the first time. The stock holdings of the bank are expected to increase as much as 6% of the foreign exchange reserves at around $4.5 billion. The same was set at 3% at the end of last year. Investments in the shares increased to around 4.5% of assets in the first 4 months of the current year as the institution made a little allocation to the European equities apart from the US funds of the same. The news was confirmed by the spokesperson of the Bank of Israel, Yossi Saadon.

Saadon added further that the basis for this decision of investing in equities is the expected equity risk premium over the bonds. Saadon also commented that the move was made with a goal to better the return to risk ration of the reserves.

Incidentally, the Central Banks from all over the world are currently looking for alternatives for holding the Government bonds. The previous efforts of the Bank of Japan, Federal Reserve and the Bank of England helped the yields to go near record low figures. The foreign exchange holdings of the banks’ have increased by around $8.5 trillion globally in the last decade, thereby exceeding the levels needed for daily currency administration.

Incidentally, a survey conducted by the Royal Bank of Scotland Group and Central Banking Publications says 23% of Central Bankers all over the world feel that they should buy shares, if they don’t own the same already. Incidentally, the Bank of Japan is the holder of the 2nd biggest reserves in the world after China and on 4th April, it announced that the bank will be doubling investments in the equity exchange traded funds to around $36 billion by end of next year.

On last year, the Bank of Israel bought equities for the 1st time, as far as the statement released by Saadon is concerned. The initial purchases were conducted through BlackRock and USB AG. The investments of the bank are in passive funds tracking the broad MSCI indexes, including big companies such as Apple Inc. President of Platinum Partners, Uri Landesman believes that the long talks of Israel’s need to diversify is finally seeing the light of day.