For Tel Aviv Stocks, the Bull Escaped in August and Never Came Back

The stock exchange’s TA-25 index rose 4.35% for the year, a better performance than in a lot of markets but not great.

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Outside of the Tel Aviv Stock Exchange.
The Tel Aviv Stock Exchange. Shares bounced back strongly on Sunday after last week's decline. Credit: Bloomberg

For investors on the Tel Aviv Stock Exchange, if the year had ended in August all would have been fine. The benchmark TA-25 index was up 17% at the start of that month, but from then on it was all downhill. The TA-25 ended the year with a paltry 4.35% gain.

On Thursday, the TA-25 squeezed out a tiny gain to close the year at 1,528.74 points. The TA-100 edged down 0.05% to 1,315.08. Turnover was lifted to just over 2 billion shekels ($510 million) by the expiry of the December Maof (TA-25) contract at 1,527.95.

If there was a standout sector in 2015 it was small-cap stocks: The TA-Midcap 50 index finished the year up more than 21%. But the Biomed index tumbled 25% and the Oil and Gas index lost 5%. The Tel-Bond 20 index fell 1.1%.

In terms of individual stocks on the TA-100, the biggest loser was the U.S. biotech company Mannkind, which plunged 61%. Next was the financially troubled property company Jerusalem Economic Corporation, which lost 54%, and the U.S. tech company LivePerson, which dropped 53%.

El Al Israel Airlines was the top gainer, soaring 345%, followed by Spuntech’s 72% and manpower services provider Hilan’s 70%.

Relative to other developed-country markets, the TASE was a mediocre performer. In Europe, both Britain’s FTSE and Germany’s DAX fell from record highs reached in April, though economic stimulus by the European Central Bank prevented markets from losing too much. The FTSE ended the year down 5%, but the main German and French markets both rose around 10%.

On Wall Street, the S&P 500 eased about 0.3% for the year and the Dow Jones Industrial Average fell 1.8%. Only the Nasdaq Composite was higher, a 6.8% gain.

Analysts are moderately bullish for Tel Aviv in 2016, citing low interest rates, a relatively buoyant economy and cheap valuations for shares even after four years of price rises.

“We believe the market will rise for the year, albeit moderately. The threats are geopolitical and the influence of higher interest rates in the United States,” said Alon Glazer, deputy CEO for research at Leader Capital Markets, which forecasts economic growth of 2.7% in 2016 and no interest rate hike before 2017.

“Share prices in the local stock market aren’t high. The optimistic outlook for the domestic economy and interest rates remaining at zero will support the stock market.”

Low interest rates will keep investors out of the bond market in 2016 like the previous year, supporting share prices – at least that’s what Eyal Debi, head of equities research at Bank Leumi’s capital markets unit, told an end-of-the-year press conference this week.

“As long as low interest rates stay with us, they will push shares higher,” he said, but added that he wasn’t worried about overvaluations with price-earnings ratios now at about 16 on the TASE. “The current PE ratio is stable, at about historical levels and far from bubble prices.”

Leumi is looking favorably on the banking, insurance, defense and telecommunications sectors in 2016; its favorites include insurer Menorah and defense electronics maker Elbit Systems. Leumi analyst Gil Datner said the telecoms sector was being driven by speculation over whether Cellcom Israel’s bid to buy Golan Telecom would succeed.

“Even if the acquisition doesn’t go through, it’s hard to see how Golan will recover. Whatever happens [mobile] rates will be going up. We recommend Bezeq and Partner Communications,” Datner said.

Glazer of Leader Capital Markets tagged the pharmaceuticals, banking and energy sectors as the most promising sectors for 2016. Low interest rates will weigh on bank earnings, but the stocks are trading at a very attractive valuation of 0.75 to book.

“Bank regulators are defending the banks against regulatory threats,” he said, calling First International Bank of Israel and Israel Discount Bank his favorites.

Colmex, an online trading platform, is more pessimistic, seeing the market showing no gains and maybe losses in 2016. Trading both at home and abroad is expected to be more volatile than in 2015,” said Elad Shemesh, a vice president at Colmex.

“It’s quite possible that more than one big drop will occur during the year, similar to the declines we saw in August 2015,” Shemesh said.

“That means that in 2016 we could see at least two trading months that suffer major drops. In addition, a markets-cycle analysis suggests 2016 could be a turning-point year – the chances of a financial crisis during the year are about 20%.”