TA-25 rally rests on the shoulders of three stocks
Without Mellanox, Perrigo and Israel Chemicals, 2012 would be shaping up to be the year of the bear.
The TA-25 index has gained 2.3% this year, but without the stellar performance by three stocks, the blue-chip index would be down close to a quarter. Mellanox Technologies has more than tripled its market value, while generic drugmaker Perrigo and Israel Chemicals are both up more than 20%.
The three stocks have boosted the index by a cumulative 26%, with the bulk - 21% - generated by Mellanox. And the stock market now adjusts each stock's weighting according to the companies' changing market values.
It lets their weightings climb above the 10% ceiling and only readjusts them down to 10% at the start of each new quarter. Mellanox, Perrigo and Israel Chemicals currently boast weightings of 10.1%, 11.3% and 11.2% respectively.
Nearly every sector on the TA-25 has taken a beating. Bank stocks suffered double-digit declines after banks supervisor David Zaken demanded that they shore up their capital. There has also been mounting regulatory pressure to lower customer costs, the financial crisis abroad, and Israel's general economic slowdown.
But banks' biggest worry centers around big borrowing groups' difficulties refinancing their debts in the capital market. This year, Bank Hapoalim has dropped 17%, Bank Leumi 20% and Israel Discount Bank 27%.
Shares in cell-phone operators Cellcom and Partner Communications plunged more than 60% after their market was opened to competition. The economic concentration committee's decisions to break up holding companies helped send the Delek and Azrieli groups down 26% and 9% respectively. The cost-of-living protests and the Kedmi committee, which aims to spur competition in the food industry, helped send Strauss Group and Osem Investment down 25% and 13% respectively.
"The entire world is in a crisis worse than anything seen for years," said a senior figure in the capital market. "Interest rates at historic lows haven't stimulated markets. The global credit crunch has reached Israel. Businessmen face new regulatory requirements every day, undermining confidence and sending foreign investors scurrying. All these factors are accompanied by mounting security concerns."
Still, the senior source says the price drops were extreme and the market now provides many interesting opportunities. He says that with patience to sustain further losses up to 30% in the short term, investors can expect handsome returns over the long run. If they choose stocks and bonds of solid companies battered by the market malaise, they'll see strong returns within several years, he says.