Tel Aviv Loses MSCI Europe Index Bid: Israel Overnight

MSCI Inc. decided against including Israel in its Europe Index, a change that the Tel Aviv bourse’s chief executive officer said would have lured as much as $2 billion in foreign capital.

The Bloomberg Israel-US Equity Index of the biggest Israeli companies in the U.S. fell 1.3 percent prior to MSCI’s announcement. Mellanox Technologies Ltd. fell to a seven-week low in New York before the maker of data-transfer technology is removed from Israeli stock benchmarks June 16. Gazit-Globe Ltd. dropped the most in two months after the real-estate company held a share tender at a discount to the previous day’s price.

Institutional investors consulted “are not supportive of an inclusion of the MSCI Israel Index” in the European gauge, the New York-based index provider said in a statement after markets closed yesterday. Tel Aviv Stock Exchange head Ester Levanon said June 6 a move to MSCI Europe would bring an additional flow of $1 billion to $2 billion.

Commenting on MSCI’s decision, Levanon today said “we would have wanted a different outcome” though “not everyone understands the advantages of investing in Israel,” according to a e-mailed statement.

The TASE requested to be included to the MSCI Europe gauge in an effort to boost trading volumes. The country’s move to developed market from emerging in May 2010 was one of the factors contributing to a trading decline in Tel Aviv, the Bank of Israel said in a March 12 report.

“This is a great disappointment and we may see this reflected in the market tomorrow,” Sharon Naveh, head of institutional and international sales at Migdal Capital Markets Ltd. in Tel Aviv, said by phone yesterday. “There were great expectations about an entry into the Europe Index and for the potential inflow of money this move could have brought.”

Volume Drop

The Bloomberg Israel-US gauge of the 25 largest Israeli companies traded in the U.S. slid to 92.52, trimming this year’s gain to 7.1 percent. That compares to a 3.6 percent advance in 2013 on the benchmark TA-25 Index, which declined 0.1 percent as of 1:46 p.m. in Israel. Volumes dropped 44 percent from the beginning of 2010 to the end 2012, compared with an 18 percent average global decline, the central bank said. In the first five months of this year, volumes fell 7.8 percent, according to data provided by the Tel-Aviv Stock Exchange. The TA-25 gauge advanced 3.9 percent in the period, compared with a 7.1 percent increase in the MSCI Europe Index.

The exchange will extend trading by an hour Mondays through Thursdays beginning June 15 as part of its efforts to increase volumes, it said in February.

‘Work Harder’

“The market was not betting on an inclusion into the European index and I don’t think we will see a major move if it is not included,” Michael Klahr, an analyst at Citigroup Inc. in Tel Aviv, said June 10 by phone. “Without the inclusion, Israeli companies will have to work harder in improving returns and showing better performance in order to attract international interest.”

MSCI said a year ago it is considering including Israeli stocks in its European index and would seek feedback from investors. The company reclassified Israel as a developed market in May 2010 and, based on “participant feedback,” didn’t include the MSCI Israel Index in the MSCI Europe Index, it said in a statement in June 2012.

Instead, it created the MSCI Europe and Middle East Index as a new regional developed-market index. The shift reduced Israel’s weighting to about 0.85 percent on the new index from 2.5 percent of the Emerging Markets index, the Bank of Israel said in March. “Funds tracking the European index didn’t have an incentive to switch to the new index,” the central bank said.

Mellanox, Gazit

Mellanox sank 5.7 percent to $47.11 yesterday. Shares in Tel Aviv fell for a second day, dropping 4.2 percent to 169.8 shekels, or $46.83. Shares of the Yokneam Elit, Israel-based maker of data transfer and storage software are to be removed from the TASE indexes on June 16 as the company “voluntarily” delists from the Israeli bourse Sept. 1.

Tel Aviv-based Gazit sank 3.2 percent to $13.64, the most since April. Shares in Israel fell for a fifth day, falling 2.7 percent to 47.67 shekels, or $13.15.

The company will offer 250 million shekels ($68 million) to institutional investors, Clal Finance Underwritings Ltd. and Leader Underwriters (1993) Ltd. said in an e-mailed report yesterday. The tender’s minimum price is 49.50 shekels a share, the underwriters said, a 2.8 percent discount to June 10’s closing price.

Gazit has commercial and retail real estate in more than 20 countries including the U.S. and Brazil.