Global Growth Concern Triggers Discount to S&P: Israel Overnight

Israeli stocks fell in New York to trade at the biggest discount to the Standard & Poor’s 500 Index companies in a year on concern the global slowdown will cut sales at companies from Retalix Ltd. (RTLX) to Magic Software Enterprises Ltd. (MGIC)

The Bloomberg Israel-US Equity Index (ISRA25BN) of the most-traded Israeli companies in New York dropped yesterday to the lowest level this year. The retreat pushed valuations to 12.2 times estimated earnings, the least relative to the average multiple for the largest U.S. companies since February 2011. Magic Software, a business software developer, slumped to a nine-month low and Retalix, the maker of supermarket software, fell the most in three weeks.

Israeli companies listed in the U.S. rely on Europe and North America for at least 56 percent of their average revenue, according to data compiled by Bloomberg. Federal Reserve Chairman Ben S. Bernanke said yesterday that financial strains have increased as unemployment in the U.S. rose from its April low, while joblessness in the euro region has climbed to the highest level on record. The Fed didn’t highlight specific policy actions to boost growth.

“Israeli companies have been buffeted by the global situation,” Stephen Schoenfeld, founder of Bluestar Global Investors LLC, a financial information company focused on Israel and the Middle East, said by phone from New York. “There is general disappointment based on unrealistic expectations of the Fed chairman’s testimony.”

TA-25 Rises

Israel’s benchmark TA-25 Index (TA-25) slipped 0.2 percent to 1,057.42 at the close in Tel Aviv today. The gauge had retreated 2.4 percent this year through yesterday, compared with a 5.2 percent drop for the Bloomberg Israel-U.S. index.

Companies on the S&P 500 Index, which has gained 0.1 percent in July, trade at an average valuation of 13.1 times earnings. Israeli companies listed in the U.S. had a higher price to estimated earnings ratio than the S&P 500 members until as recently as July 5 and last traded at a larger discount in February 2011.

Bernanke, who appeared before the Senate Banking Committee yesterday and is scheduled to speak before the House Financial Services Committee today, said that economic activity seems to have decelerated in the first half of the year. Progress in reducing unemployment is likely to be “frustratingly slow” he said, reiterating the central bank is prepared to take further action.

North America, Europe

Unemployment in the U.S. has increased from a three-year low of 8.1 percent in April to 8.2 percent. Joblessness in the euro area has climbed to 11.1 percent, the highest level since the 17-nation common currency was established. The 56 percent average revenue share of members of the Bloomberg Israel-U.S. equity index was compiled based on data available from companies reporting sales figures separately for North America and Europe.

Premier Wen Jiabao said China’s labor situation will become more “severe,” underscoring concern that the weakest economic growth since 2009 will lead to increasing job losses.

“There’s a global slowdown in several sectors,” Jay Srivatsa, managing director of equity research at Chardan Capital Markets LLC said by phone from New York yesterday. “Weakness, if it is just related to Europe, wouldn’t matter so much but China is slowing down and U.S. has also pretty much reached a problem point.”

Magic Software, based in Or Yehuda, Israel, fell 6.1 percent to $4.8, the lowest since Oct. 27. Its Tel Aviv shares slid 4.8 percent to 19.15 shekels, or the equivalent of $4.77, today.

Retalix, based in Ra’anana, Israel, dropped 2.1 percent to $20.56, the least since July 2. Its Tel Aviv shares declined 0.1 percent to 81.80 shekels, or $20.38, today. The company, which will report earnings on Aug. 2, has beaten sales estimates in all of the last five quarters.

MS Research

Teva Pharmaceutical Industries Ltd. (TEVA), the world’s largest maker of generic drugs, climbed 2.9 percent to $42.34, the highest level since May 8. The Tel Aviv shares gained 1.9 percent to 168.2 shekels, or $41.90, today.

The most-commonly prescribed multiple sclerosis drugs, including those made by Biogen Idec Inc. (BIIB), Bayer AG (BAYN) and Merck KGaA, failed to slow disability progression in a long-term study raising new questions on whether the treatments can achieve that goal.

Researchers compared historical outcomes for MS patients in British Columbia to assess the use of interferon beta drugs. The results, published yesterday after the market closed in the Journal of the American Medical Association, found the medicines didn’t delay progress of the patients’ disability.

Teva’s Copaxone, another older MS therapy, wasn’t evaluated in this study.

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

To contact the reporter on this story: Sridhar Natarajan in New York at snatarajan15@bloomberg.net;

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

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