Market Report

Tel Aviv Stock Exchange Benchmark Index Reaches Record High

But market players take news in stride, saying TA-25 is laggard in global rally.

The Tel Aviv Stock Exchange’s benchmark TA-25 index closed at a record high Wednesday, capping a 16.2% surge that began last August.

But market players took news of the new record in stride, noting that trading volumes remain low and the broader economy is looking limp.

“The Israeli market was a little behind other world markets. It was one of the few that hadn’t hit a record high,” said Yair Shani, chief investments manager at IBI Israel Brokerage & Investments Mutual Funds.

The TA-25 rose 0.7% for the day to close at 1,344.34 points, surpassing the record of 1,341.89 hit in April 2011 and only marginally off its all-time intraday high. The broader TA-100 gained 0.7% to 1,213.26 points, which put it about 40 points shy of its record.

The TA-25 rose as high as 1,345.66 during the course of the day, which still leaves January 18, 2011’s intraday high of 1.346.17 as a record. All told the TA-25 is up 13.4% for the year, which puts it behind most of the world’s equity indices. In the United States, the Standard & Poor’s 500 index is up 25.4% this year and the Nasdaq Composite has risen 30.2%.

Shani blamed the TASE’s under-performance on the 2011 social justice protests, regulations, the tense security situation in the Middle East and the fact that foreign investors left the market after the TASE was upgraded by MSCI – a company that benchmarks global financial markets – to a developed market.

But now, he said, “the geopolitical issue has fallen off the radar screen, the protests have been forgotten and corporate earnings reports have been good. The market is performing.”

Wednesday's record was reached with just NIS 1.03 billion in shares changing hands, less than the daily average in 2013 of about NIS 1.1 billion, which itself is half the level the TASE enjoyed in 2010. “There’s no market but the market is at a record high,” was the ironic comment from Ziv Panini, trading room manager at Migdal Capital Markets.

“The public has come to learn that interest rates are going to be low for a long time and that there’s no alternative for their money. Anyone who waited for a correction saw it that it never came,” said Panini. “We’re approaching the time of the end-of-the-year rally. Investors who feared political developments now see that a deal with Iran is nearing, so foreign investors are looking at Israel as an interesting investment.”

Foreign investment rising

A large chunk of foreign investment left Israel after MSCI upgraded it to a developed market in mid-2010, leading to an exodus of passive money from emerging market funds. Most of the gains have come from local investors, mostly institutions, which comprise about 85% of activity.

Foreign participation has increased of late, however, partly due to a strong shekel. “Institutional investors are happy to be part of a market where equity gains are not being wiped out by currency losses,” Zach Herzog, head of international sales at Psagot Securities, told Reuters. “That’s a big draw.”

Erez Tzadok of Aviv Mutual Funds said that with the record behind it, the TASE would probably break for a while. “Like any athlete, the U.S. and Tel Aviv bourses do some stretching and release exercises after setting a record,” he said.

But Shani said he expected the TASE to continue higher as investors chase returns. With interest rates so low, investors have bailed out of government bonds into corporate bonds, which offer higher yields. “Now the time has come to move into equities,” he said. “Prices in Israel are still low compared to overseas. We’ll continue to see money flowing into the Israeli market.”

U.S. stocks rose on Wednesday after an economic report showed the annual inflation rate remains subdued, giving the Federal Reserve room to keep its stimulus measures in place. The consumer price index dipped 0.1% last month and rose only 1% for the 12 months through October, the smallest year-over-year increase since 2009.

The Dow Jones industrial average climbed above 16,000 earlier Wednesday  and then backed away, trading up 0.2% at 15,992.49 in early afternoon New York time. The S&P 500 rose 0.2% to 1,792.05 while the Nasdaq Composite added 0.4% to 3,947.36.

European shares inched higher, recovering some of their poise after showing weakness in the previous session. The FTSEurofirst 300 ended up 0.1% at 1,297.36.

In foreign currency trading, the dollar strengthened sharply, adding more than 0.6% to a Bank of Israel rate of NIS 3.5440. The euro gained even more, appreciating close to 0.9% to NIS 4.7958.

Currency trader FXCM suggested that the shekel’s weakness could be related to “negative sentiment” about the Israeli economy, and the narrowing interest rate differential with the U.S. after the Bank of Israel lowered its base rate.

Reuters contributed to this report.

Dan Keinan