Tel Aviv Shares Hit Three-year High After Israel Credit Upgrade

'The reaction looks like a case of national euphoria and pride over the rating upgrade, but in practice nothing justifies the big rises,” said one investment officer

An electronic board displaying market data is seen at the entrance of the Tel Aviv Stock Exchange, in Tel Aviv, Israel January 29, 2017
\ BAZ RATNER/ REUTERS

The Tel Aviv Stock Exchange closed at its highest in three years Sunday after Standard & Poor’s raised Israel’s credit rating over the weekend, although analysts said they didn’t expect any immediate impact from the news.

The benchmark TA-35 index climbed 1.7% to 1,604.70 points, while the TA-125 rose 1.55% to 1,429.22. At 649 million shekels ($176 million), turnover was brisk for a Sunday while 112 stocks on the TA-125 posted gains versus just 10 ending lower. The day’s gain brought the TA-35’s rise to 6.2% in the year to date and 9.2% in the last three months.

In the bond market, prices for government bonds of 15 years or more rose 1% while those for bonds of 14 years or less by 0.4%.

“The reaction looks to me like a case of national euphoria and pride over the rating upgrade. In practice, nothing dramatic has happened to justify the big rises we saw,” said Lior Yochpaz, chief investment officer for provident funds at IBI Investment House. He said that in the short term there would be no impact of Israeli companies.

“The one impact in the short run could be that Israel begins to appear on the screens of a few more foreign investors. In the longer run it could affect the cost of corporate finance because the cost of capital for Israel abroad serves as a benchmark for companies raising money abroad,” Yochpaz added.

Alex Zabezhinsky, chief economist of Meitav Dash Investments, expressed doubt even about whether the change would lower the government’s borrowing costs. “The government has been raising money for a while as if it had a AA rating,” he said.

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The one possible opportunity for a sustained upside, Zabezhinsky said, was for domestically traded government bonds. “If I were working for a foreign fund investing in government bonds, I would looking now at what countries to invest in: Yields in Israel are outstanding and attractive relative to other countries,” he said.

Guy Beit-Or, head of macroeconomics at Psagot Investment House, said he expected Moody’s to follow suit and raise its rating for Israel, which in turn will bring more foreign money into the Israeli bond market. In July Moody’s raised the outlook for Israel to “positive” from “stable,” meaning that within 12 to 18 months at the most it will raise the rating.

“One of the things that happens to markets whose ratings have been raised is the influx of ‘passive money’ into the bond market by foreign investors,” said Beit-Or. “For that to happen, two ratings agencies have to raise their ratings and it looks like we’re almost there.”

SodaStream was the top gainer among TA-125 stocks and the volume leader for the session, adding 6.6% Sunday to 426.70 shekels. It was the third straight day of sharp gains following a strong second-quarter earnings report last week.

Teva Pharmaceuticals rose 1.1% to 82.33 after Credit Suisse and Jefferies Group raised their target prices for its Wall Street shares to $25 from $23 and to $21 from $19, respectively. Elbit Systems ended 2.4% higher at 338.20 and Nice rose 1.85% to 412.80.

Bank shares, which often serve as a barometer for the overall economy, were among the day’s top performers. The Banks-5 index ended 1.7% higher, with Hapoalim adding 12.9% to 26.20, Leumi 1.3% to 23.15 and Israel Discount 1.8% to 11.59.