Euro Woes Spur Discount to S&P 500: Israel Overnight

Israeli stocks traded in the U.S. fell, sending valuations below the average multiple of Standard & Poor’s 500 Index members for the first time in two months, on concern Europe’s debt crisis will crimp demand for exports.

The Bloomberg Israel-US Equity Index of the most traded Israeli companies in the U.S. slid 7.7 percent last week to 80.41. The retreat sent shares to trade at 12 times estimated earnings, a discount to S&P 500 companies for the first time since March 19. Technology companies Mellanox Technologies Ltd. (MLNX) and Allot Communications Ltd. sank in New York to trade at the biggest discount versus Tel Aviv shares in at least three weeks.

Europe, which accounts for about 35 percent of all exports from Israel, is facing a three-year debt crisis and may remove Greece from the euro currency union because of its failure to form a government. Almost $4 trillion has been wiped from global equity markets in May as Moody’s Investors Service lowered debt ratings at 16 Spanish banks while Greece’s credit rating was reduced one level by Fitch Ratings.

“The big problem is that Israel is a big exporter to Europe so whether it’s Greece or Spain, any negative news is affecting the companies,” Andrew Uerkwitz, an analyst at Oppenheimer & Co., said by phone on May 18 from New York. “People are calling into doubt that things aren’t going to be as strong.”

The S&P 500 (SPX) Index retreated 4.3 percent last week, sending valuations to 12.3 times estimated earnings, as speculation about Greece reversed the biggest first-quarter rally since 1998. The Stoxx Europe 600 index declined 5.2 percent.

‘Negativity Back’

Israel’s TA-25 benchmark gauge fell 1.3 percent to 1,067.98 at 9:49 a.m. in Tel Aviv after sliding 4.7 percent last week. The shares trade at 9.9 times estimated earnings, the lowest in at least two months, according to data compiled by Bloomberg.

The Bloomberg-Israel US Equity Index fell 7.7 percent to 80.41 in New York last week, pushing the shares to the cheapest level since January.

“Euro zone problems continuing to be around is bringing the negativity back to the market,” Jay Srivatsa, managing director of equity research at Chardan Capital Markets LLC, said by phone from New York on May 18. “We’re moving to the bearish outlook versus the bullish. People don’t want to stick around for the bearish.”

EZchip Semiconductor Ltd. (EZCH), the maker of network processors, slid 7.5 percent to $37.41 in New York, the sharpest weekly drop since November. The company’s Tel Aviv shares dropped 5.7 percent today to 143.4 shekels, or the equivalent of $37.50. The Yokneam, Israel-based company’s U.S. shares trade at 29 times estimated earnings, about twice the multiple for companies traded on the Nasdaq Composite Index. (CCMP)

Even with the drop, “the stocks are still pretty high for a bad market,” Srivatsa said. “People aren’t going to rush to buy the stocks at these levels. They probably have a little ways to go before people really start looking again.”

Biggest Discounts

Shares of Mellanox, the Israeli adapter maker, tumbled 6.7 percent to $54.12 in New York last week, widening the discount to its Tel Aviv shares to $4.07, the biggest gap since April 26. The Yokneam Elit, Israel-based company slipped 6.5 percent in Tel Aviv today to 208.10 shekels, or $54.42.

Barclays Plc chose Mellanox as its top stock of Israeli companies, according to its global technology outlook report released May 17 after the close of the market.

Allot (ALLT), the Hod Hasharon, Israel-based maker of networking equipment, plunged 7.1 percent to $21.87 in New York, extending its losses for a second week. The Tel Aviv shares tumbled 8.1 percent today to 84.28 shekels, or the equivalent of $22.04.

Internet Gold

Internet Gold-Golden Lines Ltd. (IGLD), which owns 31 percent of Bezeq Israeli Telecommunication Corp. through a third party, tumbled 30 percent to $3.64 in New York, the biggest drop since 2008. The company’s Tel Aviv shares gained 2.2 percent today to 14.29 shekels, or $3.74.

MagicJack VocalTec Ltd. (CALL), a Internet phone service provider, fell 21 percent to $17.74 in New York, the biggest slide since August 2010. Chief Executive Officer Dan Borislow sold an aggregate of 958,464 ordinary shares to investors, according to a May 18 statement.

Israel, whose population of 7.8 million is similar in size to Switzerland’s, has about 60 companies trading on the Nasdaq Stock Market, the most of any nation outside the U.S. after China. Israel is also home to more startup companies per capita than the U.S.

To contact the reporter on this story: Christine Harvey in New York at charvey32@bloomberg.net

To contact the editor responsible for this story: Tal Barak Harif at tbarak@bloomberg.net

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