Magazine

Israel: A Hotbed Of??nvestment


You might think that Israel's continuing strife with the Palestinians would be a red flag for investors. Yet amid escalating violence, many of the country's companies are thriving, pushing the Tel Aviv Stock Exchange to record levels. Even the takeover of the Gaza Strip by the Islamist Hamas movement in mid-June hasn't slowed the momentum. The TA 25 index is up by 21% this year, reaching an all-time high on June 17.

The market's strength is a sign of how well Israel has been able to protect its economy from the crisis. A big part of Israel's recent economic success is due to improved security. Suicide attacks have dropped sharply, largely the result of imposing walls and fences that separate Israel from Gaza and the West Bank. Nearly six years after the start of the second intifada, shoppers are feeling safer and are out in force, helping to push annual growth to 5% for the fourth straight year.

Of course, Israelis have long learned to live with conflict. Even so, there's no shortage of concern within the country over the looming threat from Iran, the possibility of another war in southern Lebanon, or a further deterioration of relations with Palestinians. "A resumption of suicide bombings or missile attacks from Lebanon will have a negative impact on the economy," says Leo Leiderman, chief economist at Bank Hapoalim, Israel's largest bank.

For now, though, Israel is thriving. And its comeback isn't just a story of renewed consumer confidence. Long known for tech standouts such as Teva Pharmaceutical Industries Ltd. (TEVA) and Check Point Software Technologies Ltd., the country is sprouting global companies in real estate, chemicals, energy, and more. The exchange has seen 46 initial public offerings so far this year, more than the total for all of 2006. Together, they have raised $2.4 billion, triple last year's total. "There has never been a better economic climate here for investment," says Stanley P. Gold, president of Shamrock Holdings Inc., a Los Angeles fund led by Roy E. Disney.

BUYING TROPHY PROPERTIES

For many of Israel's hottest companies, their headquarters may be in Tel Aviv but the action is overseas. That is particularly true in real estate. Israeli companies have poured billions of dollars into properties in the U.S., Britain, Russia, Poland, and beyond. The Tel Aviv exchange's Real Estate-15 index rose 80% in 2006 and is up by a further 25% this year. On June 10, El-Ad Group, which owns New York's Plaza Hotel, said it will invest $6 billion in a Las Vegas resort, and on May 1, Africa Israel Investments Group said it will pay $525 million for the historic New York Times Building. "We took a conscious decision last year that 90% of our future growth would be outside Israel," says Erez I. Meltzer, Africa Israel's chief executive.

Other sectors are also becoming increasingly global. In May, Israel Corp., a holding company with shipping interests, real estate, and oil refineries in Israel, announced both a joint venture to produce cars in China and the purchase of a 50% stake in a power production company in Latin America. Its shares are up nearly 50% in 2007. Soaring global demand has boosted Israel Chemicals Ltd., a leading producer of fertilizers, and Makhteshim Agan Industries Ltd., a maker of agrichemicals. Both companies export over 90% of their production and have substantial operations outside Israel. Their share prices have risen by 39% and 31%, respectively. Although Israel's political problems aren't likely to improve anytime soon, the country's strongest companies have managed to separate themselves from the turmoil and fall in step with the world economy.

By Neal Sandler


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