Bloomberg News

Allot, Teva Lead Record Rout on Growth Outlook: Israel Overnight

October 02, 2011

Oct. 2 (Bloomberg) -- Israeli companies listed in the U.S. posted the biggest quarterly loss on record amid concern that the global economy may be headed for another recession and political risk in the Middle East is worsening.

The Bloomberg Israel-US 25 Index of the largest Israeli companies traded in New York fell 21 percent in the third quarter, the worst performance according to data going back to August 2005. Declines were led by the 47 percent drop in Allot Communications Ltd., the nation’s biggest maker of high-speed networking equipment, while Internet Gold-Golden Lines Ltd., an internet service provider, fell 46 percent.

The Israel-US 25 Index trailed the Tel Aviv benchmark TA-25 Index, which dropped 12 percent, the worst quarter since June 2010, as companies in the New York gauge depend more on international sales. The TA-25 Index tumbled 2.2 percent at the 4:30 p.m. close in Tel Aviv today, the first trading day since Sept. 27. A worldwide equity rout erased about $9.2 trillion from global stocks since the end of June as signs mounted that the world economy is faltering and concern increased in Israel that Palestinians’ push for statehood would create turmoil.

“There was a bit of a double-whammy -- the most significant is obviously the global growth concerns,” said Uriel Goren, head of the international clients desk at Tel Aviv- based DS Securities & Investments. “People are feeling that the entire stability of the Middle East is quite shaken right now.”

UN Outlook

The United Nations Security Council, in its Sept. 30 preliminary discussions about the Palestinian application for full membership to the world body, decided to have a committee of experts meet to examine whether the bid fits the criteria for membership. Israeli Prime Minister Benjamin Netanyahu has been lobbying allies to oppose the measure and the Obama administration says it will exercise its veto if the measure reaches the Security Council.

Israel joined countries including Turkey and Brazil in reducing borrowing costs last month as the global economy slumped. The first cut to the benchmark interest rate in 2 1/2 years surprised 20 of 22 economists surveyed by Bloomberg, who forecast the bank would keep rates unchanged as Israel seeks to tame inflation. More than 400,000 people protested the rising cost of living in street demonstrations in September.

The shekel weakened 9.2 percent from the end of June through September, to 3.7486 per dollar, the fourth-best performance among 10 emerging-market currencies in Europe, the Middle East and Africa.

Overseas Sales

Israeli companies that get most of their sales overseas, such as Teva Pharmaceutical Industries Ltd., are affected more by the global slowdown than those that depend on domestic demand, said Gilad Alper, an analyst at Excellence Investments House in Ramat Gan, Israel.

Teva’s American depositary receipts, which have the largest market value among U.S.-listed Israeli companies, slid 23 percent in the third quarter amid concern over the future of its best-selling multiple sclerosis drug, Copaxone. The drug, which accounted for 23 percent of second-quarter revenue, faces new competition from a competing pill made by Novartis AG. Teva’s biggest market is the U.S. and its performance was also affected by slower growth in the American economy, Alper said.

The shares of the world’s biggest generic-drug maker jumped 5.7 percent to 140.70 shekels, or the equivalent of $37.53 in Tel Aviv today. Teva’s New York shares were traded at the steepest premium to its Israeli stock among all companies in the Bloomberg index on Sept. 30. They rose in each of the last five trading days, climbing 0.8 percent to $37.22 on Sept. 30, to widen the gap to $1.70 more than the Israeli shares.

Share Offering

Allot Communications dropped 14 percent, its biggest decline since Aug. 21, to 37.65 shekels in Tel Aviv, or the equivalent of $10.04. They plummeted 8.5 percent, the most in six weeks, to $9.75 on Sept. 30 in the U.S.

Allot fell 47 percent in New York last quarter. The company announced plans on Aug. 1 to issue 4.5 million new shares, then said it would put the offering on hold following declines in the market.

Allot’s decline was mainly caused by the company’s offering, which would dilute the value of the shares, said Jay Srivatsa, an analyst at Chardan Capital Markets LLC in New York. A selloff in technology stocks in the U.S. also aggravated the Allot’s share slump, he said. The Standard and Poor’s 500 Information Technology Index lost 8 percent since the end of June, the most in five quarters.

“Once the investors start to feel better about the marco conditions in the economy, as well as start getting more into the tech names, we’ll start to see a lot of benefits from that,” Srivatsa said.

Share Valuation

Fundtech Ltd., the Israeli provider of banking software for Bank of America Corp. and HSBC Holdings Plc, was the best performer in the Bloomberg Israel-US 25 Index in the third quarter, gaining 16 percent. The stock surged after GTCR Golder Rauner LLC, a Chicago-based private-equity firm that owns rival software maker BankServ, offered to buy the company for a 33 percent premium.

Fundtech rose 0.2 percent to 85.56 shekels, or the equivalent of $22.82, in Tel Aviv today.

Israel, whose population of 7.7 million is similar to Switzerland’s, has about 60 companies listed on the Nasdaq Stock Market, the most of any country outside North America after China.

Israel’s stock market was upgraded to developed market status by MSCI Inc. in May 2010, the same month the 63-year-old country was accepted to the Organization for Economic Cooperation and Development.

Stocks in the Bloomberg Israel-US 25 Index trade at 13 times trailing earnings, compared with a historical average of 27 times. The valuations suggest Israeli stocks are poised for gains, according to Goren of DS Securities & Investments.

“There will be a rebound, but it will be very much correlated with global markets,” Goren said. “Companies are trading at ridiculous valuations. The downside now is much more limited.”

--Editors: Brendan Walsh, Glenn J. Kalinoski

To contact the reporter on this story: Belinda Cao in New York at Lcao4@bloomberg.net; Alexander Cuadros in Sao Paulo at acuadros@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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