(Bloomberg) — Israel’s main equities index has joined a wave of global stock benchmarks by climbing to a record high, in the latest sign investors are looking beyond the country’s turbulent domestic politics and focusing on positive economic and corporate themes.
The TA-35 advanced 0.5% as of 9:50 a.m. in Tel Aviv, extending its increase in the past 12 months to 15%. The benchmark is mostly composed of financial, health care and real estate companies, and Israel’s is the only equity market in the Middle East classified as developed by major index compilers.
Positive momentum has continued to build as equity gauges across Europe, Asia and the U.S. touched all-time highs, and even as Prime Minister Benjamin Netanyahu battles to avoid a corruption trial after being indicted in three graft cases. Israelis are preparing to go to the polls on March 2 for the third time in a year after previous votes failed to produce a majority government. A combination of low interests rate and optimism over economic growth is helping stocks, analysts said.
“GDP is expected to grow above 3%, and inflation is very low,” said Eyal Dabby, the head of equity research at Bank Leumi Le-Israel BM in Tel Aviv. “Unemployment is also at the lowest level. It is a strong economy with fair pricing and very low interest rates. The combination of all these parameters is supportive for the equity market.”
Tel Aviv’s main stocks gauge was expanded to 35 members in February 2017, from 25 previously. Several companies that are based in the country and listed on the local exchange also trade in New York, such as Nice Ltd. and Perrigo Company PLC. They were the main contributors to the gauge’s positive performance in the past year.
Here’s more of what analysts are saying about Israeli equities:
Bank Leumi Le-Israel’s Dabby
“It is difficult to predict what will be the exact market performance in 2020, but if nothing special happens, especially in the U.S., to which the Israeli market is highly correlated, the equity market could continue to deliver between 8%-10% gains on average.”“Regarding the political issue, after the election, the uncertainty will decrease significantly. Investors are looking ahead of it, and when they focus on fundamentals, we don’t believe that the Israeli market is expensive.”Expects the energy sector, especially gas, to be among those outperforming due to recent regulatory improvements. Also cites banks, insurers and real estate companies as potentially outstanding sectors.
BlueStar Indexes, Steven Schoenfeld, chief investment officer
Momentum in technology earnings is expected to continue.Health care sector will remain stable, but the U.S. presidential election is a possible threat to outlook.Eventual limited P/E expansion for domestically-oriented stocks “due to domestic GDP growth at long-run potential.”Increased visibility in revenue and earnings potential for Israel’s energy sector as the Leviathan offshore gas project starts to flow, seen as “a major strategic deal for an Eastern Med pipeline inked with Greece and Cyprus.”Notes political and geopolitical factors, including Israel’s domestic political uncertainty.
“Notwithstanding domestic politics and geopolitical events, Israel starts 2020 with its disinflation boom intact, GDP set to grow 3.1% (IMF) and CPI at 1.0%. In almost a re-run of 2019, the shekel remains well bid while the equity market is supported by ultra-low real bond yields. We remain bullish,” strategists including Sean Darby write in note.Technical indicators suggest the market is overbought in the short-term, while valuation and risk measures seen as being neutral at present.Still, the technical condition of the equity market has been extremely bullish, with breadth improving since the beginning of 2019.
–With assistance from Alisa Odenheimer.
To contact the reporter on this story: Filipe Pacheco in Dubai at [email protected]
To contact the editors responsible for this story: Celeste Perri at [email protected], John Viljoen, Blaise Robinson
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