(Communicated by the Bank of Israel, Office of the Spokesperson and Economic Information)

• Israel's assets abroad grew by about $5 billion (about 2 percent) in the second quarter of 2011, to $266 billion. This was due mainly to increased deposits abroad by Israeli banks, and an increase in the Bank of Israel foreign exchange reserves.
• The balance of liabilities to abroad increased by about $3.3 billion (1.3 percent) in the second quarter of 2011, and reached about $261 billion at the end of June. Most of the increase was due to an increase in foreign banks' deposits at banks in Israel and an increase in nonresidents’ investments in Israeli shares.
• These developments in Israel's IIP increased the net surplus of assets abroad by about $1.6 billion, in a continuation of the trend in the first quarter of 2011.
• The surplus of assets over liabilities in debt instruments alone increased in the second quarter of 2011 by about $2 billion, and reached about $60 billion (a negative net external debt).

Balance of assets and liabilities 

Israel's net surplus of assets abroad increased in the second quarter of 2011 by about $1.6 billion. It should be noted that in the first quarter of 2011 Israel's economy switched to a surplus of assets abroad after an extended decline in net surplus of liabilities over assets abroad, which began in the second half of 2000 (Figure 1).

 
Israel's net assets abroad increased in the second quarter of 2011 by about $5 billion, (2 percent), and were $266 billion at the end of June.

The increase in Israel's assets abroad derived from an increase of $1.7 billion in Israeli banks' deposits in banks abroad, an increase of about $1 billion in direct investment abroad, and by $2.2 billion in the Bank of Israel foreign exchange reserves. Those increases in assets were partially offset by $380 million in sales of financial investments abroad by Israeli residents, and the effect of lower prices in foreign markets.

The allocation of Israeli residents' asset portfolio abroad did not change much over the first half of 2011. The weight of direct investments at the end of June was 37 percent, investment in shares was 20 percent, and Israeli residents' bank deposits abroad remained at 15 percent.

The balance of Israel's liabilities to abroad increased in the second quarter of 2011 by about $3.3 billion (1.3 percent), and was $261 billion at the end of June. Most of the increase came from an increase in deposits of foreign banks into banks in Israel ($3.2 billion), as well as from nonresidents' net investment in Israel (direct investment and financial) of $3.9 billion. The increase in portfolio value was largely offset by the drop in share prices during the period - $3.4 billion.

Nonresidents carried out net sales of bonds of $1.6 billion in the second quarter, about $800 million were of government bonds, and $280 million were makam. In addition, there were also net sales of $520 million of private bonds and government bonds abroad.

Nonresidents' net direct investments in Israel totaled $1.6 billion in the second quarter of 2011, $1.3 billion of which was non-distributed profit that was reinvested.

Nonresidents invested about $2.3 billion in Israeli shares in the second quarter, of which $1.1 billion was on the Tel Aviv Stock Exchange (TASE), and about $1.2 billion on overseas exchanges.

Bank of Israel statistics also show that the value of the financial portfolio of foreign residents on the Tel Aviv Stock Exchange began to fall in the second quarter of 2011 and at the end of June was $44.6 billion - a decline of $2.5 billion, mainly due to the drop in share prices.

At the end of the second quarter, nonresident investors held balances of $17 billion in financial equities on the Tel Aviv Stock Exchange, $11.5 billion in direct investments, and $15.7 billion worth of shekel bonds.

The distribution of shareholders in Israel indicates that since Israel's reclassification to developed market in May 2010, there has been as marked change in the makeup of holders of Israeli shares (see figure 3). 

In parallel with an expected drop in the level of investment by emerging market funds, there was a marked increase in holdings of other investors, including developed markets funds (from $6 billion to $9.4 billion) and nonresident institutional investors (from $2 billion to $3.5 billion).

The external debt

Israel's gross external debt increased by $3 billion in the first quarter of 2011, and at the end of March stood at about $109 billion. Most of the increase was the result of nonresidents’ increased holdings of makam and government bonds, and an increase in credit from nonresidents.

The external-debt/GDP ratio at the end of March 2011 was 46 percent, a reduction of about 0.3 percentage points from the ratio at the end of 2010.

The net external debt

The surplus of assets over liabilities abroad in debt instruments alone increased by about $2 billion in the second quarter of 2011, to reach $60 billion (i.e., a negative net foreign debt). The increase in debt instruments was primarily in foreign exchange balances, and bank deposits by Israeli banks into banks abroad.

The balance of short-term debt assets was $123 billion at the end of June 2011, a coverage ratio of 2:1.