Gas shares gained 130% in 5770

The Tel Aviv Stock Exchange has the rare privilege of being able to do its annual stock-taking twice a year: once at the Jewish new year and again at the end of December.

The year 5770 on the Hebrew calendar, ending tomorrow, will be best remembered for its volatility. Share prices swung wildly and oil and gas stocks soared, fueled by massive finds on the bed of the Mediterranean Sea.

	David Azrieli, second from right, with top TASE officials, upon the biggest flotation in TAV history.
	Photo by: Moti Kimche

The benchmark TA-25 index hit a record high on April 6 of 1,237.85 points, breaking its previous record from October 2007.

The year 5770 can be divided into two: Nine good months when stocks advanced and three bad ones. In the first nine months of the Jewish year, the benchmark TA-25 gained 30%, but then investors were unnerved by the debt crisis in Europe, especially in Greece and Spain, and trouble in the United States. Yet the TA-25 rose about 20% for the year.

Israel outperformed

Despite the three bad months, local stock indexes outperformed most indexes in developed countries in 5770, in dollar terms.

The biggest gainer was the index of oil and gas exploration stocks. That index jumped 130% for the year after the announcements of large offshore discoveries and the possibilities of even larger finds.

The poorer performers included the Real Estate-15 index and the MidCap-50; both were little changed for the year.

Much of the optimism for the first nine months resulted from an uptick in economic indicators, such as economic growth, which is now forecast at 4.1% for 2010, following 0.7% growth in 2009. Unemployment fell to 6.2% in June, compared with an average of 7.6% in 2009.

Israel weathered the economic upheavals relatively well, and the Bank of Israel became one of the first central banks in the developed world to start raising interest rates again. Now at year-end 5770 the central bank rate is 1.75%, from its nadir of 0.5%.

The dollar barely budged against the shekel over the year, after appreciating by about 6% in 5769. One reason may be that the Bank of Israel continued to intervene in the foreign currency market during 5770, buying about $1 billion, but only on an ad hoc basis after ending its regular daily purchases in August 2009.

Joining the OECD

Another highlight of 5770 was Israel's joining of the Organization for Economic Co-operation and Development as a full member at the end of May. Israel also moved from the MSCI index of developing nations to the exclusive club of developed countries.

This change affected trading on the TASE and foreign investors' actions. The move from developing to developed caused investment managers and analysts to reassign Israeli shares to new categories, and many investors chose to wait to learn more about Israeli shares and markets before adding them to their portfolios - while others had already removed them from their developing market investments.

As a result, foreign investors reduced their holdings in TASE stocks by $1.9 billion in the period from February to May, but these reductions ended in the third quarter.

Turnover on the TASE also grew significantly in 5770, up 20% from the previous year to reach a daily average of NIS 2 billion. But in the last few months, as losses increased and more investors became more uncertain about global economic conditions, daily volume dropped to about NIS 1.5 billion.

But while Israeli stocks received the cold shoulder from foreign investors over the past few months, Israeli bonds told a different story. Local bonds and makams - the Israeli equivalent of T-bills - enjoyed a massive influx of $5.9 billion in foreign investment. This led to a rise of between 10% and 15% in bond prices from a year ago.

Inflation-linked corporate bonds led the gainers, rising 16%, after gaining about 8% in 5769. Unlinked government bonds rose about 9% over the year, similar to the previous year. Inflation-linked government bonds rose even more, about 11%.

The big surprise - for the worse - were dollar-linked corporate bonds, which gained only 3% over 5770 as the dollar remained unchanged.

Daily turnover in the bond market averaged NIS 4.3 billion in 5770, down from NIS 5.1 billion the previous year.

The state cut back on bond issuance in Tel Aviv, preferring to raise money abroad. Companies took advantage of the vacuum to raise more money. They raised NIS 40 billion in stocks and bonds in 5770, about 40% more than the previous year. The banks were the biggest issuers, taking in NIS 9 billion. Half the amounts raised were in unlinked corporate bonds, which shows that investors still suspect that inflation will raise its head again.