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Thursday, May 19, 2016

Update on Israelis Shekel(NIS) and US $ Exchange Rate and the Israeli Stock Market


NIS/US $ Exchange Rate

The NIS/US$ rate as reversed sharply of late with the US $ rising to over 3.8700 in trading on May 20 a 2 month high (chart reflects trading through May 19)


The reasons for the rise are related to two developments:

A weak GDP report for 2Q 2016 for with growth of only .8% (vs.2% the previous quarter) with a 4% fall in exports wasreleased  eralier in the week. That would indicate no likelihood of rate hikes and also an interest to keep the NIS weak to help exports. Looking at technical analysis the break on the US $ downside accelerated after the rate fell below 3.8500 and accelerated in the other direction when it crossed 3.8500 indicating strong support/resistance at that level.

The second factor is the release of the minutes from the US Federal Reserve yesterday that increased the likelihood of US interest rate hikes in June. That would be a positive factor for the US $ as interest rate differentials would widen both vs the NIS and the Euro. As can see below Euro weakness has accelerated since the report and the sharp move likely indicating a reversal of many short $ long Euro positions.



Israeli Stock Market : Capitalization Woes

I have written before about the domination of the major Israeli stock index the TA 25 by the drug sector approaching 25% of the index. Not only does this mean the index is not diversified it also means that investing in the TA 25 doesnt reflect the economy and despite Israel's reputation as a high tech leader most top tech successes from Israel either go public on the US stock exchange --recent examples would be WIX and Mobileye or are sold to large global players such as WAZE being sold to Google.Investing in the index also doesnt give exposure to a broad range of Israeli domestically oriented coutntries and among those it has a high exposure to the large banks which make up another quarter of the index ..and have had poor results as of late. 


Israel’s main stock index has drugmakers to blame for dragging the gauge to within 1.1 percent of a bear market.
Pharmaceutical companies Perrigo Co., Teva Pharmaceutical Industries Ltd., Mylan NV and OPKO Health Inc., which make up about a quarter of the TA-25 Index, have tumbled this year, wiping $27 billion off values and sending the gauge down 19 percent from a peak in August. The measure is near a bear market even though 76 percent of its members traded above their 100-day moving average this week.
Until the stock exchange limits a company’s weighting on the index, drug companies will continue to drive the stock measure lower, according to Ayalon Group Ltd.
“The weighting of pharma companies in the main index has been a problem as it’s not a reflection of the Israeli economy with most of them not even based in the country,” Yaniv Pagot, the head of strategy at Ayalon Group, an institutional investor in Ramat Gan, Israel, said by phone. “The bourse’s reform is clearly essential but coming a bit late. The bottom line is investors won’t be able to recover losses and as a result they may need to sell positions at an increased loss.”

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