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Thursday, June 4, 2015

Israeli Global Companies vs. "Local" Israeli Companies

I wrote about the Israeli stock market in 2 previous posts here and here  about the distinction between Israeli multinationals mostly in high tech and pharmaceuticals and "local" Israeli companies tied mostly to the local market. Since those global companies are either dual listed between the US and Israel with most of the volume on the US exchange or only listed on the US exchange.

For that reason I wrote there is not a compelling reason to invest in specifically Israeli stocks.The global Israeli companies move based on global economic and industry trends not anything specfic to the Israeli companies. And the purely local Israeli companies are not particularly compelling evidence...and represent only .34% of the world's stock market capitalization.

An excellent way to illustrate this is to compare the performance of the TA 25 index the tel aviv stock exchange large cap index dominated by multinational corporations and the TA 75 index which includes almost exclusively "local" Israeli companies.

The TA 75 Index which is dominated by local companies and as seen by the chart above has significantly underperformed the TA 25. Also noteworthy is the very large outperformance of the TA 25 vs the TA 75. That is because of the strength of the US $ against the Israeli Shekel (NIS). Simply put these are dollar priced stocks, the price on the Tel Aviv stock exchange is simply the dollar price translated into NIS. Not only are the stocks in the TA 25 not linked to the Israeli economy their value moves inversely to the NIS a weak NIS means a higher price . 

TA 25 Index (gold) TA 75 Index (blue)

Here are the components and weightings of the TA 25 Index:
5 global companies Perrigo, Teva, Nice Sytems,Opko and Elbit make up just over 37% of the index

TA 75 Components:
Here is a chart of the NIS/$ exchange rate. Note the stronger dollar here and how it coincides with the current period of large outperformance of the TA 25 vs the TA 75

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