The Tel Aviv Stock Exchange’s plans to stem slumping trading volumes and reverse a share-sale drought will probably struggle to work amid heavy regulation, Excellence Nessuah Brokerage Ltd. and Ayalon Group Ltd. said.
“What is depressing the market is the extremely burdensome regulation and government bureaucracy,” Gilad Alper, a senior analyst at Petach Tikva, Israel-based Excellence, said by phone yesterday. “Until they are resolved, investor interest will continue to spiral downwards” and the impact of the new initiatives “will be minimal,” he said.
Legislation aimed at lowering the cost of living and boosting government revenue prompted share declines from cellular operators to gas-exploration companies. Trading volumes have dropped by a third since an MSCI Inc. upgrade in 2010. Israel, which has the world’s largest number of startups per capita, is also suffering its longest drought of initial public offerings in at least five years.
The bourse is amending rules to allow trading of local companies listed abroad, and will boost efforts to attract smaller businesses to the market, Chief Executive Officer Yossi Beinart said in an interview May 12. The exchange is targeting share sales from 100 companies by 2019, and an increase in volumes of as much as 25 percent a year, said Beinart, who assumed his position in January.
Average daily volume on the exchange fell 12 percent to 3.4 billion shares this year from 3.9 billion in the same period of 2013, and there has been no IPO in Tel Aviv since June, data compiled by Bloomberg show. Regulation may have to take a step back, Beinart said at a press conference yesterday. A spokeswoman for the stock exchange declined to comment further when contacted by e-mail.
“Questions remain on how he will attract local and foreign investors to the market and why would companies prefer to list in Tel Aviv,” Yaniv Pagot, chief strategist at Ramat Gan, Israel-based Ayalon Group Ltd., which manages the equivalent of $5 billion in assets, said by phone yesterday. “Everyone is talking about deregulation, but we continue to get a stream of new regulation every day.”
Phone companies including Bezeq the Israeli Telecommunication Corp. were the worst performers on the benchmark TA-25 Index in 2012 after the regulator opened the wireless industry to competition. Israel Chemicals Ltd. shares had the poorest showing on the gauge in the past 12 months amid a government review on natural resources royalty payments.
The measure has advanced 4.1 percent this year, compared with a gain of 2.2 percent for MSCI’s developed-country index.
Airport-City, Israel-based Inrom Industries Ltd., a maker of paints and construction products, said on April 27 it would hold an IPO in Tel Aviv. Foodmaker Tnuva Food Industries Ltd. was said to be seeking a listing on the exchange should talks with China’s Bright Food Group Co. about an acquisition fail. A parliamentary committee today voted in favor of easing some capital market rules, including in some reporting requirements, according to an e-mailed statement today.
International investors began shunning Israeli stocks after May 2010, when index provider MSCI pulled the country out of its emerging-market gauge and placed it in its developed-nation measure. Israel’s weighting dropped to 0.2 percent on the MSCI World Index from 2.7 percent on the gauge for developing nations, data compiled by Bloomberg show.
“Any attempt to boost liquidity and therefore price efficiency on the local market is positive,” London-based William Scholes at Aberdeen Asset Management Plc, which manages $180 billion in active equities worldwide, said in a phone interview yesterday. “At this stage it is too early to say whether these measures will actually take effect in a meaningful way.”