Market Report / Israeli Insurance Stocks Tumble on Fee Reforms

Tel Aviv stocks swung to a mixed ending on Tuesday in a session marked by investors punishing insurance stocks following fee reforms considered likely to damage the sector’s profits.

While the benchmark TA-25 index fluctuated throughout, only to end 0.3% higher at 1,120 points, the index of insurance companies fell 3.6%, led south by the 5% drop in shares of Clal Insurance.

Gold - Bloomberg - 22022012

Although the insurance companies indeed weighed on the indexes, the broader TA-100 index finished slightly in the green, at 1,020 points. But all the narrow-sector indexes finished in the red, albeit not by much. Tech stocks eased down about 0.3% and the TA-Biomed index lost 0.2%. The Real Estate-15 index lost 0.7%.

Total turnover remained low at a billion shekels.

The decision fell on Monday, at the highest levels of government, to gradually lower the maximum permitted management fees for provident funds to 1.05% of managed assets a year by 2014.

During the session, the index tracking insurance companies fell by as much as 6% in anticipation of a hit to their revenues and profits, though by the closing, they had clawed back enough ground to end “just” 3.6% in the red. Clal Insurance lost 5%, Harel fell by 3.4%, Menora by 3.3%, Migdal ‏(the biggest of the pack‏) by 3%, and Phoenix lost 2.6%.

Also standing out was Israel Chemicals, which gained 4% on news that it’s on the short list of companies to buy Eilat Port.

In fact one thing that didn’t seem to move Tel Aviv investors on Tuesday was developments in Europe. It is true that the agreement achieved for the second bailout for Greece, a 130-billion-euro package, is good news, remarked Erez Golan, head of the Discount Bank dealing room. But investors had anticipated it and the news is reflected in the share prices, he says: That’s why shares have been rising since last week.

As for the insurance companies, he pointed out that fees from managing provident funds are a significant contributor to profit.

World markets were equally unmoved by the Greek bailout. Amid skepticism that it’s a genuine solution for the debt-beleaguered Mediterranean country, European stocks fell across the board on Tuesday. UK shares lost 0.4%, German stocks fell by 0.7% and the French benchmark lost 0.2%. Further testimony to the dubiety investors feel about the rescue for Greece came from gold, which rose 1% in price to its highest level in two weeks. When feeling jittery, investors like to hunker down in gold. “Gold gets a boost from the EU kicking the can down the road,” said Rob Kurzatkowski, senior commodity analyst at optionsXpress. Or in English: The bailout may defer the meltdown but not prevent it, many suspect.

With reporting by Eran Azran.