A Few Gleams In Israel's Gloom

Just like the rest of the emergingmarket world, Israeli stocks have been bummers. Disappointing earnings, disillusionment with the Mideast peace process, higher interest rates, and a wave of insider-trading scandals have roiled the Tel Aviv Stock Exchange. The result is that Israeli shares have crumbled some 40% since the market peaked at yearend 1993. And among the hardest hit were the 60-odd stocks of Israeli high-tech companies traded in the U.S. It's a sad spectacle, especially for the phalanxes of investors who have wagered on Israeli technical expertise.

But Israeli high-tech shares seem poised for a recovery in 1995. Until recently, many of the stocks were trading near their 52-week lows. But there's evidence market sentiment is turning. Value-hunting investors are snapping up Israeli high-tech shares. Favorable earnings news, once shrugged off by the market, now sends investors into a tizzy. A case in point: ECI Telecom Ltd., a telecommunications company whose shares soared 11% on Feb. 9 on reports of better-than-expected earnings.

Bank Hapoalim's index of 65 Israeli shares traded in the U.S.--59 of which are high-tech shares--is up by 10% since bottoming on Jan. 10, and the rally is probably not over. "So far, fourth-quarter earnings have been far better than initial predictions," says Hanna Pri-Zan, director of Bank Hapoalim Ltd.'s securities unit.

One big drawing card for the Israeli high-tech stocks is that, unlike many emerging market stocks, they are largely insulated from currency fluctuations. They are emphatically export-oriented and report in dollars. "These days, they tend to be compared to their American or European competitors and not to stocks of other emerging markets," notes David Rosenberg, research director at Pacific Mediterranean Investments, a Tel Aviv brokerage.

To be sure, the vagaries of the Bank of Israel's exchange-rate policy have been a drag on the stocks. But monetary issues are likely to be outweighed by the strong growth in sales and the introduction of new products by many


BREAKING AWAY. Among the favorites of analysts and investors are Gilat Satellite Networks, a producer of equipment for the rural telephone market; Tower Semiconductors; and Teva Pharmaceutical Industries Ltd., which has a new multiple sclerosis drug and is a major player in the U.S. generic-drug market. Another star of the Israel high-tech galaxy is Indigo, a world leader in the digital printing industry that has attracted investment by George Soros.

The improved outlook for Israeli high-tech companies has also led to a renewed interest in initial public offerings in the U.S. after nearly a year of little activity. DSP Telecom, Paradigm Geophysical, and Telrad Telecommunications are among the Israeli high-techs looking to tap the market soon.

Last year, Israeli stocks nose-dived regardless of their fundamentals. And renewed political stress will hurt the market generally. But Israeli high-tech companies seem to be breaking away for the Middle Eastern miasma and the meanderings of Tel Aviv's volatile stock market. The recent upturn is not exactly manna from heaven--but, for now, it will have to do.

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