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Record Discount to Tel Aviv Created by Rout: Israel Overnight

The tumble in global stocks last week sent Israeli-shares traded in New York to the biggest discount on record relative to their Tel Aviv prices, signaling the equities may fall in Israel.

The aggregate difference in prices for the biggest shares traded in New York and Tel Aviv grew to $11.71 last week, the widest gap in at least eight months, according to data compiled by Bloomberg. The Standard & Poor’s 500 Index posted its biggest weekly loss since 2008 and European stocks sank 18 percent from this year’s high on Feb. 17 on concern the economy is weakening and debt crises worsening.

Declines in New York-traded shares of EZchip Semiconductor Ltd., the Israeli maker of network processors that counts Cisco Systems Inc. as a customer, left the stock $2.90 cheaper than in Tel Aviv. The retreat of Teva Pharmaceutical Industries Ltd., the world’s largest maker of generic drugs, in New York increased the discount to the Tel Aviv shares to 93 cents.

“The U.S. market has just tanked and that will have an impact in Israel,” said Andrew Uerkwitz, an analyst at Oppenheimer & Co. in New York. “The arbitrage is so bleak that it’s not going to tighten that quickly.”

The Bloomberg Israel-US 25 Index of the largest Israeli companies that trade in the U.S. lost 11 percent last week to 87.61, the lowest level since July 2009. The measure is down 16 percent this year.

Shekel Weakens

Israel’s benchmark TA-25 Index slipped 6.3 percent last week to close at 1,154.96 on Aug. 4. The Tel Aviv measure has lost 13 percent this year, or 12 percent in dollar terms.

The shekel weakened 0.6 percent on Aug. 5 to 3.5196 per U.S. dollar by 4:30 p.m. in New York, the weakest level since May 18. The currency has increased 5.7 percent versus the dollar over the past six months, the best performer among 10 emerging markets in Europe, Middle East and Africa tracked by Bloomberg.

EZchip, based in Yokneam, Israel, fell 7.1 percent in past two days of U.S. trading to $31.50. The Tel Aviv shares were at 121 shekels, or the equivalent of $34.40.

Teva posted the biggest weekly drop since October 2008, losing 13 percent to $40.72, on concern the Petach Tikva-based company’s multiple sclerosis treatment won’t receive approval from American regulators. The Israeli shares fell 6.7 percent last week to 146.50 shekels, or the equivalent of $41.65.

After the declines in New York “clearly there will be an overflow,” said Chaim Fromowitz, the head of the private banking division at New York-based Bank Leumi USA, a unit of Israel’s largest lender by assets. “There’s no question that the global market is going to have an impact on the Israeli market as well.”

Exports Fall

Israeli exports make up about 40 percent of the nation’s gross domestic product, according to the Central Bureau of Statistics. Sales of goods excluding diamonds, ships and aircraft fell 2.4 percent in the second quarter, compared with the first, according to the central bank.

“Many of the companies that are dual listed are impacted by the U.S. economy and the prospects of a second recession,” Fromowitz said.

Israel, whose population of 7.7 million is similar to Switzerland’s, has 57 companies traded on the Nasdaq, the most of any country outside the U.S. after China. It is also home to the largest number of startup companies per capita in the world.

Israeli technology companies raised $569 million in capital during the second quarter of 2011, the most in two years and up from $343 million in the same period last year, according to the Israel Venture Capital-KPMG Quarterly Survey released July 13.

The nation’s stock market was upgraded to developed market status by MSCI Inc. in May 2010, the same month the 63-year-old country was accepted to the Organization for Economic Cooperation.

‘Entry Point’

“If no good news come out over the weekend from Europe it’s going to continue and that’s a great entry point to get into Israel,” said Jamia Jasper, the president of AmerIsrael Capital Management, LLC. “The market isn’t trading on fundamentals but on emotion.”

Nice Systems Ltd., the maker of digital surveillance and monitoring systems, posted the biggest loss among the largest Israeli stocks that trade in the U.S. this week, dropping 15 percent to $30.49. The Tel Aviv shares closed at 112.90 shekels last week, or the equivalent of $32.10. The $1.61 discount to the Israeli shares was the biggest since May 2009.

China’s Tianjin Metro and Russian rail terminals bought the company’s security systems, while the Bank of Ireland purchased its product to fight fraud in the three months through June, Nice said last month.

Elbit Systems

“Nice is going to be in demand no matter what the economy does,” Jasper said. “Corporations need to record their calls and need to invest in compliance and security. That is always going to be in demand.”

Jasper also recommends buying shares of Elbit Systems Ltd. Israel’s biggest non-government defense company lost 7.7 percent this week in New York to $43.26. The Tel Aviv shares closed at 156.50 shekels last week, or the equivalent of $44.49.

“Elbit makes drones, which is a cheaper, more efficient method of warfare,” she said. “As countries such as the U.S. cut their defense budgets and pull out of countries like Afghanistan, drones will take their place.”

Allot Communications Ltd., Israel’s biggest maker of high-speed networking equipment, rose 1.8 percent on Aug. 5 to $13.03, the biggest gainer on the Bloomberg Israel-US 25 Index.

The Hod Hasharon, Israel-based company said that it withdrew its proposed secondary offering following the declines in the markets, according to a PRNewswire statement Aug. 4 after the end of trading.

SodaStream International Ltd., the Airport City, Israel-based producer of homemade soda machines, advanced 3.2 percent to $70.31. CNBC “Mad Money” host Jim Cramer recommended buying the company’s shares.

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