Israel Adds Riskier Equities to Diversify Portfolio
- Israel’s central bank is adding more equities and high-yield corporate bonds to its portfolio.
- “We have a broader set of currencies, and we’re also going into a broader set of instruments,” Governor Amir Yaron said Thursday.
- The move follows Israel’s currency reshuffle that saw dollar holdings slashed while boosting China’s yuan.
After adding China’s yuan to its holdings for the first time ever in April, Israel’s central bank will further diversify its reserves to include more equities and high-yield corporate bonds, according to Governor Amir Yaron.
“We have a broader set of currencies, and we’re also going into a broader set of instruments,” Yaron said Thursday in an interview with Bloomberg. “It’s part of our way of enhancing the overall return on these reserves as we’re looking at the medium-run outlook for the return on our investments.”
The shift into more equities and riskier assets is part of the bank’s biggest portfolio reshuffle in a decade and an evolving investment “philosophy.”
Before, the bank only held US dollars, euros, and the British pound. But in April, it slashed its dollar and euro holdings while adding the yuan, as well as the Canadian and Australian currencies and the Japanese yen. The changes come as Israel aims to lengthen its investment horizon and generate greater returns on its roughly $200 billion foreign-exchange stockpiles.
“We need to look at the need to earn a return on the reserves that will cover the costs of the liability,” Deputy Governor of the Bank of Israel, Andrew Abir, said in an April interview.
Now, about 2% of the bank’s reserves are allocated to the yuan, and the Canadian and Australian currencies will have about 3.5% each, according to the bank’s annual report. The euro’s share dipped from 30% to 20%, and the dollar accounts for 61%, down from 66.5%.
The International Monetary Fund reported earlier this year that the dollar’s share of total global currency reserves has dropped to its lowest point in over two decades, which has spurred speculation over the rise of the yuan.
But experts say the global economy would have to simultaneously lose faith in the dollar while gaining trust in China’s monetary policy for any significant change to global reserve to occur.
“Challenges to the dollar have come before, but none have taken hold because when things turn volatile, the US tends to be stable, so the dollar persists,” economist Aleksandar Tomic previously told Insider.