Stocks Poised for Worst Month on Growth Woes: Israel Overnight

Israeli shares traded in New York are heading for their worst month on record on concern global economic growth is faltering and the Palestinian Authority’s quest for statehood may destabilize the country.

The Bloomberg Israel-US 25 Index of the largest Israeli companies that trade in the U.S. retreated 0.2 percent to 85.48 yesterday, extending its August drop to 13 percent, the worst monthly performance in data going back to September 2005. SodaStream International Ltd. (SODA), the maker of machines that carbonate water, led the gauge’s decline, falling 50 percent after its profit forecast trailed estimates. Teva Pharmaceutical Industries Ltd. (TEVA), the world’s largest maker of generic drugs, dropped 13 percent on concern new products won’t boost sales.

Mounting speculation that global economic growth is faltering, combined with Standard & Poor’s cut to the U.S. credit rating and European countries’ struggle to repay debt has pushed shares lower worldwide. Israeli companies also fell on concern that a pending United Nations resolution on Palestinian statehood may create political turmoil when it is considered next month, said Uriel Goren, head of international clients at DS Brokerage & Investments Ltd.

“We’re going through one of the most difficult times right now,” Goren said from Tel Aviv. “The main reason is concern about global growth, but the instability in the Middle East and anticipation ahead of the September decision is also adding concern.”

Israel’s TA-25 Index of stocks rose 1 percent to 1,132.51 at the 4:30 p.m. close in Tel Aviv. The benchmark lost 7.5 percent this month, or 11 percent in dollar terms, the biggest drop since November 2008.

Large Exporter

Almost $5 trillion has been wiped off the value of equities worldwide this month amid concern the global recovery is weakening. Growth in Israel slowed to an annualized 3.3 percent in the second quarter from a revised 4.7 percent in the previous three months, the Central Bureau of Statistics said Aug. 16.

“There are concerns aligned with Europe and the U.S. growth, and on top of that there are the geopolitical events and concern about the Palestinians getting a state,” said Jamia Jasper, the president of AmerIsrael Capital Management LLC in New York. “Israel being a large exporter tends to be very sensitive to this.”

Exports make up about 40 percent of Israel’s economy, with Europe and the U.S. its largest markets.

The shekel rose 0.4 percent to 3.5580 per dollar. The currency has dropped 3.9 percent this month, the third-worst performer among 10 emerging markets in Europe, Middle East and Africa tracked by Bloomberg.

Rate Outlook

While Bank of Israel Governor Stanley Fischer held the benchmark interest rate unchanged for a third month at 3.25 percent this week, interest-rate swaps are showing investors betting on a rate cut. The cost of fixing Israeli interest rates for two years fell to 3.60 percent yesterday, the lowest level since at least May 2005. It rose three basis points to 3.63 percent today.

Inflation, which has exceeded the government’s 1 percent to 3 percent target since the beginning of the year, has eased and price pressures have moderated on slower economic activity and after Israelis rallied against the cost of items ranging from cottage cheese, a local staple, to housing.

Consumer prices fell for the first time in more than a year in July, retreating 0.3 percent from June, the statistics bureau said Aug. 15. The annual inflation rate slowed to 3.4 percent from 4.2 percent.

Declines in the Bloomberg Israel-US 25 Index pushed valuations to 9.8 times estimated earnings, below the Nasdaq Composite Index’s 15.4 ratio and the S&P 500’s 12.2 level.

“This might be a good opportunity to go in,” Goren said.

UN Resolution

The United Nations will consider a resolution on Palestinian statehood in September, a move opposed by Israeli Prime Minister Benjamin Netanyahu. The administration of U.S. President Barack Obama has indicated it will veto any statehood resolution in the UN Security Council, saying the move would undercut efforts to restart direct Israeli-Palestinian talks and jeopardize U.S. aid to the Palestinian Authority.

Obama has asked Israel to agree to new talks on a Palestinian state “based on the 1967 lines,” endorsing a key Palestinian demand, while discouraging Palestinian Authority President Mahmoud Abbas from pursuing “symbolic actions” at the UN in September.

Eight Israelis were killed in an attack by Palestinian militants near the resort city of Eilat on Aug. 18. At least 24 Palestinians were killed in subsequent Israeli air strikes on the Gaza Strip and one person in Israel died during a rocket attack.

Negative Turnaround

“Developments since the previous interest rate decision indicating a negative turnaround in economic activity in the U.S. and the euro zone, together with the geopolitical risks, are likely to affect economic activity in Israel,” the central bank said in its statement Aug. 29.

SodaStream, the Airport City, Israel-based company, slumped 34 percent on Aug. 11 after the company said 2011 net income will probably climb 60 percent from last year, reiterating its previous outlook. Analysts had forecast profit to almost triple, according to the median estimate of six analysts surveyed by Bloomberg. Shares fell 1.1 percent yesterday to $36.56.

Teva declined this month on concern among shareholders that the drugmaker will struggle to find a replacement for its best- selling drug, Copaxone. Shares of the Petach Tikva, Israel-based company lost 0.1 percent yesterday to $40.53 in New York. The Tel Aviv shares gained 1.5 percent to 146 shekels, or the equivalent of $41.03, today.

EZchip Gains

EZchip Semiconductor Ltd. (EZCH), the Israeli maker of network processors that counts Cisco Systems Inc. as a customer, is the only company on the Bloomberg Israel-US 25 Index headed for a gain this month, poised to climb 0.4 percent. Shares in New York increased 1.5 percent to $31.02 yesterday. The Israeli stock advanced 3.3 percent to 112 shekels, or the equivalent of $31.48, today.

Orbotech Ltd. (ORBK), the Israeli maker of equipment to test screens of smartphones and tablets, is the third-best performer this month, after dropping 0.2 percent. Second-quarter net income rose to $18.9 million from $12.4 million in the same period last year, the Yavne, Israel-based company said Aug. 1.

“They’re seeing good demand in the printed circuit boards market, which is driven by tablets and smart phones,” said Jim Ricchiuti, an analyst at Needham & Co in New York.

To contact the reporter on this story: Tal Barak Harif in New York at tbarak@bloomberg.net

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

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