Israeli Stocks Drop as Automatic U.S. Budget Cuts Take Effect

Eran Azran
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Eran Azran

Trade on the Tel Aviv Stock Exchange opened lower on Sunday, against the backdrop of $85 billion in automatic U.S. government spending cuts that went into effect over the weekend after Congress failed to head off the measure.

The Tel Aviv-25 index closed the day down 0.4%, to 1,216.09 points, despite the rise in share prices on Wall Street on Friday. The broader Tel Aviv-100 index slumped by 0.4% as well, closing at 1,085.89. Trading volume was just 367 million.

The Banks-5 index declined by 0.6%, while the Real Estate-15 was off 0.4% and the Insurance index shed 0.8% of its value.

Among shares of note in trading on Sunday was IP service optimization company Allot Communications, which declined by 8.4% on heavy turnover. Oil- and gas-sector companies were also standouts.

Globe Exploration shares gained 19%. Shemen Oil and Gas Resources shares rose by 10.9% and Eden Energy Discoveries by 10.3% after the term of the license at the Shemen drilling site was extended to late April. Eden has a stake in Shemen Oil and Gas.

Last week’s extraordinary performance of Israel Land Development Company Energy Ltd. continued Sunday when its shares rose an additional 18.2%, for no apparent reason.

Trading came against the backdrop of additional corporate earnings reports and the TASE plan to extend its trading hours to attract more foreign trading. If it received regulatory approval, the TASE will end its sessions on Monday through Thursday at 5.30 P.M. instead of 4.30 P.M. Trading on Sundays will be shortened to end at 2.30 P.M. and the start of trading will be moved to 10 A.M. from 9.45 A.M.

Last year the average daily stock trading volume on the TASE declined to NIS 1.1 billion, which was just 55% of the average trading volume in the course of a day’s trading in 2010. New corporate funding through bond issues has also been on the decline.

“The changes decided by the board are expected to contribute to an increase in the turnover of shares, to growth in activity by foreign and local arbitrage players, to improve the liquidity of shares included in the main indexes in general and in dual-listed stocks in particular, and making the market more attractive to foreign investors,” the TASE said in a statement.

In their survey over the weekend, economists from Bank Leumi noted that anticipated government spending cuts here in the coming months could have a negative influence on the performance of local shares.

But in the short term, the survey said, trading will be largely influenced by events overseas, particularly the government budget situation in the United States.

Second-tier stocks here continued to be relatively strong last week, with the Tel Aviv-75 outperforming the TA-25, the survey noted. But the low trading volume, an average of NIS 700 million, contributed to volatility in the market, particularly when it comes to stocks eyed by speculators.

No debt deal on IDB

The efforts of Nochi Dankner’s IDB group to come to terms with bondholders on a rescheduling of its debt has again deadlocked.

Over the weekend, bondholder representatives issued a statement saying that negotiations over NIS 1.7 billion in bond obligations have not resulted in agreement.

“The company] is not prepared to proceed with even one section of the debt rescheduling plan,” the statement said. “In light of the lack of will on the part of the company to proceed with negotiations, we have no choice but to come to the conclusion the negotiations have hit a dead end.”

Meanwhile, the partners in the giant offshore Leviathan field reported over the weekend that efforts to bring Australian energy company Woodside Petroleum into the partnership were continuing.

Bezeq on Sunday advised the TASE of the anticipated reduction by the Communications Ministry of interconnect fees the company collects for completing calls involving other carriers. Bezeq shares declined by 1% Sunday.

Despite the view of analysts that the cuts could cost Bezeq NIS 140 million in annual revenues and the ministry’s view that it would reduce revenues by about NIS 90 million, the company said the loss would not be material and that a portion would be offset by lower expenses at its cellular subsidiary, Pelephone.

Reuters contributed to this report.

The Tel Aviv Stock Exchange.Credit: Bloomberg