Israel’s benchmark stock index rebounded from the biggest slump in 11 years on speculation the nation’s economy will weather a credit-rating downgrade in the U.S., one of its biggest trading partners.
Israel Discount Bank Ltd. (DSCT), the country’s third-largest bank, jumped 4.7 percent. Strauss Group Ltd. (STRS), the maker of food products including chocolate, snacks and coffee, soared the most since April 2009. The TA-25 Index gained 1.5 percent to 1,090.39 at the 4:30 p.m. close in Tel Aviv, after earlier climbing as much as 2.6 percent. The measure plunged 7 percent yesterday after Standard & Poor’s cut the U.S. credit rating.
“Institutions are taking the opportunity to buy on weakness,” said Daniel Goldstein, head of institutional sales at Excellence Nessuah Investment House in Ramat Gan, Israel.
The TA-25 gauge earlier fell to a low of 1,072.13, or 20 percent below the record close of 1,341.89 on April 21. A loss of 20 percent or more signals a so-called bear market to some investors. The 25 companies on the index are valued at an average 10 times estimated earnings, according to data compiled by Bloomberg. That compares with 11.2 for the MSCI World Index.
European stocks declined as the S&P downgrade overshadowed the European Central Bank’s purchase of Spanish and Italian government bonds. U.S. index futures and Asian shares declined. The Stoxx Europe 600 Index also entered a bear market after retreating 20 percent from its high in February.
Discount advanced the most since June 13 to 5.697 shekels as UBS AG added the country’s third-largest lender to its Pan- European Top 20 small/midcaps Key Calls list. The shares tumbled 10 percent yesterday.
“A recently signed series of employee union agreements and subsequent launch of a new strategic roadmap could market the turning point for the bank,” Darren Shaw, head of research at UBS Securities Israel Ltd. in Herzliya Pituach, wrote in a note to clients today. Shaw raised his recommendation on Discount to “buy” from “neutral” on June 13 after the bank reached an agreement with the union that it said would save the bank as much as 330 million shekels by the end of 2012.
Strauss shares jumped 5.2 percent to 45.66 shekels.
Government bonds soared. The yield on the benchmark 5 percent Mimshal Shiklit due January 2020 dropped eight basis points, or 0.08 percentage point, to 4.87 percent. The Tel-Bond 40 Index of corporate bonds advanced 0.7 percent. The shekel weakened for a sixth day, dropping 0.9 percent to 3.5523 against the dollar.
S&P today cut the ratings on Israel’s sovereign bonds guaranteed by the U.S. to AA+ from AAA, in line with the rating action on the U.S. taken Aug. 5. The sovereign credit ratings on Israel remain unchanged at A/A-1 with a stable outlook, S&P said.
“Israel is not very vulnerable to the U.S. downgrade,” Barclays Plc analysts wrote in a note to clients today, as economic fundamentals have been on an “improving trend for quite a while.” Demonstrations about rising food and housing costs are a “possible concern,” they said.
Finance Minister Yuval Steinitz on Aug. 6 called the downgrade a “warning sign” for Israel’s economy. Growth may reach 4.8 percent this year, the Bank of Israel said on Aug. 2.
More than 300,000 protesters gathered across the country Aug. 6 to demonstrate against rising costs for housing and consumer goods. The demonstrations are the latest in a series of protests that started with complaints about the price of cottage cheese, an Israeli food staple. Dairy companies, including Strauss Group, have cut prices since.
These demonstrations “could cause a move towards more populist policies and lead to a worsening in economic policies,” Barclays analysts wrote.
Prime Minister Benjamin Netanyahu said yesterday “corrections” in social-welfare policy must be taken “with sensitivity, but responsibly.” It isn’t possible to meet every demand being made, he said.
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