Israel: Appreciation of the shekel against the euro has been a major headwind for Israeli exporters in 2015.

Despite the brutal conflict raging less than a hundred miles away in Syria, and the violence in Israel itself, Tel Aviv is thriving.

Moreover, for investors, economic activity throughout this country of eight million people continues to grow. Next a year with slightly weaker performance than in 2014, Israel's economy is expected to be one of the fastest growing part developed nations.

At the same time as it comes to investing in Israel, here's what to watch out for in the coming year:

The direction of the U.S. and key world developed equity markets as they react to this week's shift in U.S. monetary policy
The direction of the Israeli shekel against the currencies of its major trade partners
Local macroeconomic factors, pace of world trade increase in 2016, and regulatory uncertainty in the banking and oil and gas sectors
The continued innovation of Israel's technology sector, which is a world-leader in a range of established and disruptive new tech areas
Whether Israel's real estate market will stabilize or even strengthen next hitting a soft patch in late 2015

Appreciation of the shekel against the euro has been a major headwind for Israeli exporters in 2015.

The shekel as well has appreciated slightly against the dollar in 2015 despite the rise in U.S. interest rates. This strength in the shekel is due to improving Israeli fiscal balances, optimism on the development of Israel's large offshore natural gas fields and a continued strong economy.

While Israel has a lot of catalysts that are not related to world trade patterns, the country still relies heavily on exports and international trade for a substantial part of its GDP increase. If world economic increase begins to accelerate in 2016, and the shekel is either stable or perhaps even slightly weaker against the U.S. dollar and the euro, it would likely lead to an extra year where Israeli World Equities outperform other developed market equities, as they have done over the long-term.

A higher pace of world trade with a shekel that is weakening slightly against the dollar, combined with an by presently strong domestic Israeli economy would lead to a year of Israeli world equities outpacing other developed market equity markets next underperforming in 2015.

Capital Markets

As the Tel Aviv Stock Exchange (TASE) looks to increase the number of companies listed, companies that are by presently listed on the TASE and included in the TA-25 and TA-100 indexes may consider increasing the % of shares that are floated in 2016. This would be in order to maintain their weights in those indexes. BlueStar believes this will be a highly-positive catalyst in the Israeli stock market, and could unleash a 'virtuous cycle' of deeper and additional robust capital markets.

Furthermore, the TASE is as well striving to become a additional world exchange, which could increase international investor focus on Israeli companies, both public and private. The TASE and the Israeli government are continuing to create incentives for non-Public Israeli companies to grow organically rather than seeking or being subject to acquisition by a foreign company.

Next year is likely to show evolution on this front. That should position Israeli equities for higher allocation in world investors' portfolios, particularly those that view all Israeli equity universe (TASE-listed plus U.S. and London-listed Israeli companies) as their opportunity set.

Energy

A potential recovery in commodity prices is likely to lead to a pickup in world inflation toward what are considered additional normal levels. That is generally positive for equity markets.

Israel's nascent oil and gas industry could have the majority meaningful macroeconomic impact on the country's economy. Recent moves by the government of Prime Minister Benjamin Netanyahu will clarify terms for major investment by Israel's Delek Energy and Noble Energy of the U.S. in Israel's massive new discoveries in the Mediterranean Sea. The development of this industry, and allowing for exports, will result in capital investment for both the extraction/storage/transport of gas and for converting energy sources from oil and coal-based to natural gas-based.

Israeli Innovation and Israeli Tech Companies

Israel is home to scores of innovative companies bringing cutting-edge technologies to the world marketplace. This includes Mobilye (MBLY), which is the leader in autonomous vehicle technology, advanced CyberSecurity companies, like CyberArk, Checkpoint and Radware, and a range of other companies in medical technology, info tech and defense Tech that protects airliners from terrorist missiles

BlueStar's "TA-BIGITech" includes 65 companies that are leaders in all major fields of technology. The Nasdaq-listed ITEQ tracks the TA-BigITech and fills a key gap in technology investors' portfolios, providing exposure to Israeli companies listed worldwide but not part of most tech benchmarks and ETFs.

Real Estate

Israel's historically strong residential real estate market is showing signs of slowing price appreciation. Supply and request balances are likely to be supportive of Israel's real estate markets for a lot of years. The net cost or benefit of this will depend on the magnitude and velocity of the slow down. The stabilization or rebound in Israel's real estate market next a late 2015 soft patch would be positive for Israel's economy, and its markets. From presently on Israel's commercial real estate is likely to continue on a successful path, in no small part because of the country's technology boom.

Telecommunications Sector

Israeli telecom companies had a strong year in 2015, led by Bezeq. While consolidation is unlikely due to the regulatory environment, stabilization could be a net positive for Israeli equities.

Pharmaceuticals

Investors should expect some volatility in Israeli pharmaceutical and bio-tech companies whose primary target markets are in the U.S. The industry could be impacted by next year's Presidential elections. U.S. government price-controls in the pharmaceuticals industry, as suggested by at least one presidential candidate, could have an adverse impact on companies.