The assassination of Israeli Prime Minister Yitzhak Rabin Nov. 4 won't damage the investment prospects for the country and Middle East region, according to U.S. and European institutional investors.
In fact, because the assassination will accelerate the peace process Mr. Rabin set in place by unifying Israelis against radical factions, investment prospects could brighten.
"There's not going to be a reversal - if anything, an acceleration. Most people are pro the peace process," said John Legat, senior emerging markets portfolio manager for G.T. Capital Management Inc., London, which runs $2.5 billion in emerging markets assets.
"Maybe people were getting a bit complacent about how close peace was. With something like that, people realize it's not a done deal after all," he said.
The Israeli market has taken the tragic event in stride. It declined about 3.5% the day after the assassination but already has recovered - a sign that investors think the investment outlook is stable. And Koor Industries Ltd., Tel Aviv, one of Israel's largest companies, is not postponing its planned U.S. stock offering because of the assassination.
"People realize there is continuity in Israel....There may be political uncertainty but no instability. The underlying fundamental changes - thanks in no small measure to Rabin - are in place and won't be unwound," said David Edgerly, general manager of Alliance Capital Management (Turkey), Istanbul, which runs close to $200 million in the Mideast region.
"Was the prime minister their Abraham Lincoln? Perhaps he was sacrificed to end the war that began" virtually with Israel's inception, said George Foot, a partner with Newgate Management Associates, New York.
J. Mark Mobius, president of Templeton Emerging Markets Fund, Hong Kong, which runs $7 billion, said the assassination "may even strengthen the situation because Israelis will be much more willing to pull together in the realization that they have to quash this ridiculous radicalism."
Money managers believe the investment outlook for the entire region hinges on the peace process. So, apparently, did Mr. Rabin. On Sept. 20, he spoke for 45 minutes without notes as a keynote speaker to a group of U.S. pension plan executives and investment managers who were on a 10-day trip to Amman and Jerusalem, sponsored by Pensions 2000, San Francisco.
"His speech was so philosophical and moving. We presented him with a little dove (carving) symbolizing peace in a burlap bag. He opened the bag, looked inside and smiled," said Philip Schaefer, president of Pensions 2000.
Although the markets have had a subdued reaction, "we shouldn't have a false sense of security. The implications may be more serious - but not dangerous. The question is whether (acting Prime Minister Shimon) Peres will be able to rally the people behind him and continue what Rabin began," said Omar Masri, Middle East fund manager of Foreign & Colonial Emerging Markets Ltd., London, which invests almost $150 million in the region.
"Peres was never a great general like Rabin. People put trust in Rabin on the country's security. Peres is more 'doveish.' He was willing to give up more, sooner, than Rabin would have done," Mr. Masri said of the Israeli-occupied territories.
But, he added, "Peres was the architect of the Oslo agreements, which started the peace process."
Mr. Mobius said: "Of any country we look at, perhaps Israel has the most consensus-oriented team. The government is really run as a team, not a one-man show. Sure, Rabin deserves all the praise he got, but (the peace agreement) wasn't his doing. It was a whole lot of people working together."
Despite investor optimism, few are building up large positions in Israeli stocks.
Mr. Mobius said: "We have been investing in Israel and we will continue to invest. We have been quite selective. Pricing is on the high side."
The $2 billion Templeton Developing Markets fund invests 0.5% in Israel in such stocks as Bank Hapoalim, Clal Industries, Discount Investment Corp. Ltd. and First International Bank of Israel Ltd. It owns little in technology stocks - a key sector in Israel - because that sector's "pretty much overpriced."
But Turkey "is a huge area for us." Including Turkish holdings, Templeton has over $400 million in the Middle East region.
Mr. Mobius said Israel and Turkey are "definitely related. Aegean resorts are filled with Israelis. There's an opportunity for closer economic relations there. Turkey is benefiting from the whole (peace) process."
As for Jordan's much smaller stock market, it fell slightly the day after the assassination, continuing a trend of the past two years. It had been reacting negatively to the peace process, according to Mr. Masri, and "this is one more nail in the coffin."
S. Chin Kim, president of Alpine Capital Management, Englewood Cliffs, N.J., who has been monitoring the Israeli market for some time, said: "Israel has been used as a launching pad to the region. The infrastructure is more ready than other countries," and the work force is highly skilled.
Mr. Kim owns a token position in Tadiran Ltd., a high-tech company, for his hedge fund, the $60 million Alpine Focus Fund, which is up 40% so far this year.
But Mr. Kim said it might be too soon to invest heavily in Israeli stocks. "I have to see more than a 30% gain potential (over 12 to 18 months) to get involved. So far I haven't seen that. It is promising, yet it is not ripe."
But Mr. Foot said the Israeli stock market has been battered so much since it peaked Sept. 11 that he thinks it's "quite oversold." He started buying Israeli closed-end funds in the first week of October. Recently he purchased the London-listed Israel Fund, which is selling at a 23% discount to net asset value. He also likes Turkey. Turkish closed-end funds in the past two weeks were increased to 7% of the portfolio from practically zero.
David Herro, director of international equities at Harris Associates, Chicago, who will be portfolio manager of The New England's Growth Fund of Israel when it is launched Jan. 15, said the assassination "highlights the instability in the region but does nothing to deter the prospects. ....Israeli companies have done a very good job globalizing their book of business. It's an export nation. The market for Israeli products is there with or without the assassination."
Mr. Herro's value-oriented Oakmark International fund owns Scitex Corp. Ltd., an Israeli computer graphics company whose $16 a share price equals its net current assets.