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UBS: Banks and cellular firms will stand out despite shaky economy
By Rotem Sella

Israel's banks are the "potential winners" in the current economic climate, UBS Investment Research says in a survey published yesterday. UBS notes that while the banks stand to benefit from high inflation and a strong shekel, the Israeli economy will slow due to the impact on exports.

The telecommunications companies - Partner, Cellcom and Bezeq - are also on the winner's list because their "strong pricing power" allows them to pass inflation's effects on to customers. UBS notes that certain exporters such as Israel Chemicals will also be able to offset the effects of the weaker dollar thanks to higher global prices for their products.
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On the loser's side, UBS says inflation and subsequently higher financing costs will sting the second-quarter earnings of highly leveraged companies, particularly real estate and holding companies.

"We estimate that over 50% of Israeli corporate debt is CPI linked. Therefore higher CPI translates into increased interest expenses," the report says.

UBS forecasts tougher times for the export sector in general due to the shekel's strength versus the dollar and euro.

High tech companies are high on the list of potential losers, and because exports account for around one-third of gross domestic product, Israel's economic growth is also likely to slow.

UBS' top share picks are Bank Leumi, Israel Chemicals, Partner and the other cellular telephone operators.
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