For the Tel Aviv Stock Exchange, 5773 Was the Year of the Bear

Returns were poor and trading volumes shrank. But a few segments did very, very well.

The Jewish year of 5773, which ends this week, has been kind to investors elsewhere, with the U.S. Standard & Poor’s 500 index producing a handsome 11% return. But this past year has been one of stagnation in Israel.

In other leading world markets, Japan’s Nikkei index strengthened by 17%, Germany’s DAX index gained 14% and France’s CAC 40 index climbed 13%, according to data collected by the Tel Aviv Stock Exchange. Lagging far behind were the local blue-chip TA-25 index, which inched up just 2% in 5773, and the benchmark TA-100, which eked out a 5% return.

Leumi Capital Markets analyst Gil Dattner says the gap has narrowed somewhat following recent sharp drops overseas, particularly in developing markets.

“The most prominent feeling by investors toward the local stock market is indifference,” says Dattner. “The story wasn’t interesting enough and seems quite problematic. In the U.S. we’ve seen a story of mounting recovery, and in Europe the story was about attractive pricing and expectations for an economic turnaround. In Israel there were mainly worries - stricter regulation, economic slowdown, an increased tax burden on Israeli consumers, appreciation of the shekel and a host of security threats.”

As it is, the Israeli stock market started the year 10% off its peak, Dattner said. “It seems that investors decided to bypass the local market. This disregard also reduces volumes, making the market even less attractive.”

If the TASE itself was dull, investors could take come comfort in the fact that macroeconomic indicators published in advance of the new year were more encouraging. Gross domestic product expanded 5.1% on an annual basis in the second quarter after two consecutive years of growth ranging from 3% to 3.7%. Inflation in 5773 was 2%, the midpoint of the government’s target inflation rate band.

Price stability permitted the Bank of Israel to lower its interest rate three times, in increments of 0.25%, to close the year at 1.25%. Despite the declining interest rate, the shekel gained 9% over the U.S. dollar during the past year.

Finance stocks up

Led by Bezeq, which soared 53%, the TA Communications index registered the sharpest gain of the year, jumping 42% - but only after crashing 44% the year before. Cellcom Israel and Partner Communications rose 29% and 20%, respectively. Shares in smaller companies also surged, with the TA MidCap-50 climbing 42% on the heels of an 18% gain the previous year. The outstanding performers were Mazor Robotics, a medical electronics maker that skyrocketed 215%, and AudioCodes, with a 130% gain.

The TA Real Estate-15 index was up 40% for the year, led by Jerusalem Economy’s 61% climb. Mall developer and operator Azrieli Group, the most heavily weighted stock in the index, advanced 14.5%.

The TA Finance index also posted a strong year, rising 32% after losing 13% the previous year. Poalim IBI, the underwriter, climbed 44% following a recovery in the underwriting market. But two of the index’s leading stocks, Bank Hapoalim and Mizrahi-Tefahot Bank, gained just 6% and 2%, respectively.

Some sectors, including insurance and communication companies, were distinctly underpriced, said Dattner, a trend he predicted will continue in the near future.

Waning turnover characterized the stock market over the past year and contributed to the resignations of TASE CEO Ester Levanon and chairman Sam Bronfeld. Daily trading averaged NIS 1.1 billion in 5773, not much different than in 5772, but only after trading hours were extended in June.

Handsome gains for bonds

The fixed-income market posted handsome gains in 5773. Government bonds rose 6%, about the same as the year before. Corporate bonds linked to foreign currency went unchanged despite the weakening of the dollar against the shekel.

The Tel-Bond 20 index climbed 8% for the year while the Tel-Bond 40 and 60 indices gained 10% and 9%, respectively. The Tel Bond-Yields index, launched in February and comprised of inflation-linked corporate bonds rated BBB minus to A, rose 5% since its inception.

Daily turnover in the bond market averaged NIS 4.4 billion, up 10% from the year before. Makam turnover averaged NIS 600 million, a 10% slide from the year before, when it fell by 45% following the July 2011 cancellation of a tax exemption on Makam investments granted to foreign residents.

The year saw only four initial public offerings, while two dual-listed companies registered for trading in Tel Aviv. Public offerings totaled NIS 3.6 billion, 54% more than in 5772. Funds raised by the business sector through stock and bond issues totaled NIS 32.5 billion in 5773, similar to the year before.

The three largest sums raised this past year were NIS 1.5 billion by Mizrahi-Tefahot, NIS 1.2 billion by Israel Aerospace Industries and NIS 1 billion by the real estate company Gazit Globe. After raising NIS 13 billion in 5772 - 40% of the total raised that year in the business sector – banks raised just NIS 3 billion this past year.

The pharmaceutical and diagnostics company Opko Health, with a company value of NIS 10.5 billion and whose shares are traded in New York, listed this year in Tel Aviv, too, before merging with Prolor Biotech, another dual-listed company. BATM Advanced Communications, whose shares trade in London, also registered for trading this year on the TASE.

After issuing stock worth NIS 218 million in the U.S., pharmaceutical company Kamada dual-listed its shares for trading on Nasdaq and began reporting accordingly. Meanwhile, shares of the retail software company Retalix were taken off the Tel Aviv Stock Exchange and Nasdaq following the company’s merger into NCR. And three dual-listed companies - the telecommunications company Mellanox, IT solutions provider BluePhoenix Solutions and software company Cimatron - pulled their shares from Tel Aviv trading.

NIS 30b more in index-linked instruments

There are now 462 series of exchange-traded notes traded on the TASE, including 277 tracking local and international stock indices and 185 tracking local bond, Makam and commodity indices. Another 28 track currencies.

The public’s holdings of these instruments reached an unprecedented NIS 95.4 billion at the end of July, a NIS 30 billion increase since the beginning of 5773.

Since last year the public has increased its holdings of exchange-traded notes on local stock indices by NIS 5.5 billion and on international stock indices by NIS 7 billion. Daily ETN trading accounted for 22% of the turnover in share trading during 5773, up from 20% the year before.

Trading on TA-25 index options decreased: An average of 200,000 options a day were traded this past year, 25% less than in 5772.

AP
Bloomberg