Citigroup: Will shekel follow the zloty?

Citigroup compares the shekel with the Polish zloty in a new review on emerging markets, and suggests that an appreciation is likely soon.

Citigroup says, �The depreciation of the Israeli shekel since mid-May appears to us to have a number of similarities with the sell-off in the Polish zloty that took place in early 2005. Since that earlier sell-off proved to temporary, we think there is at least an argument that the shekel will soon resume its tendency to appreciate. Here are some of the similarities between the Israeli story and the Polish one:

The appreciation of the zloty in 2004-05 and the shekel in 2006-07 was in each case a market response to an economic recovery following a relatively strong investment recession in the early part of this decade;
In both cases, the investment recession of the early 2000s had been associated with a big depreciation of each country�s real exchange rate. In real, trade-weighted terms, the peak-to-trough move in the shekel was approximately 25% between October 2000 and October 2005. For the zloty, the equivalent depreciation was 29% between February 2001 and February 2004.
The sell-off of the zloty in early 2005 proved short-lived, only around six weeks, in which it lost approximately half of the amount it had gained during the rally. For comparison, the current sell-off in the shekel has produced a move that is also equal to around half the amount it had gained during the rally.�

Citigroup concludes, �If the shekel�s path follows that of the zloty in 2005, an appreciation should follow reasonably soon.�

Published by Globes [online], Israel business news - www.globes.co.il - on July 17, 2007