Israeli institutions reduce FX exposure sharply

ISRAEL - In Brief 11 Jan 2022 by Jonathan Katz
Israeli savings institutions (with over 0.5 trillion USD under management) have been gradually selling FX all year as higher equity valuations abroad have forced them to sell FX (by derivatives) in order to avoid increasing their FX exposure. Institutions were net FX sellers of 21bn USD through October 21. In November they sold 4.1bn USD, reducing their FX exposure to 16.8% of all assets from 18% last month! (19.7% in Dec 20). In November, Israeli institutions sold 0.2bn of assets abroad and increased their FX hedge positions by 3.9bn. This is a fairly sharp move by institutions which are usual conservative in their investment strategy. This means that they see less and less justification for being exposure to FX (as they too realize the likelihood for further appreciation is strong). If this policy of FX exposure reduction by institutions continues, if will be a factor supporting the shekel, in addition to the strong possibility of Israel joining MSCI Europe in February.

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