Exodus to New York a Boon for Tel Aviv Stock Returns

The growing number of Israeli companies deciding to list abroad is turning out to be a boon for investors on the local stock exchange.

Israeli traders are avoiding this year’s rout in shares of computer and software makers as more technology companies seek to list their shares abroad. While Israel has more active startups per capita than any country, the benchmark TA-25 Index has only one tech stock after Mellanox Technologies Ltd., which makes equipment to speed data transfers, left the Tel Aviv bourse last year.

The TA-25 index of companies listed in Tel Aviv has jumped 5.3 percent in 2014, trouncing a 1 percent gain on the Bloomberg Israel-US Index, which comprises the largest Israeli companies trading in New York. Mellanox is down 22 percent this year, while Lod, Israel-based SodaStream International Ltd. is the worst performer on the American gauge, posting a 26 percent drop.

“The Israeli companies listed outside of Israel are predominantly technology companies in an innovative space with a lot of belief in future earnings and future growth,” Steven Schoenfeld, founder of BlueStar Global Investors LLC, said by phone from New York last week. “The market punished stocks that got too far on their valuations.”

Local investors avoided getting burned by declines in U.S.- traded technology stocks amid concern prices have outrun earnings. Instead they are benefiting from gains in Israel’s energy and banking sectors, according to Schoenfeld, whose firm built the BlueStar Israel Global Index, which includes Israeli companies listed both in Tel Aviv and abroad.

Top Stocks

Among the top performers on the TASE, as the Tel Aviv exchange is known, are Avner Oil Exploration LLP and Delek Drilling LP, both of which are poised to benefit from natural gas discoveries in Israel. Bank Hapoalim Ltd., the lender which isn’t listed in the U.S., has rallied 6.7 percent this year.

Companies have been seeking overseas listings as international investors began shunning Israeli stocks after May 2010, when index provider MSCI Inc. 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.

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. There has been no initial public offering in Tel Aviv since June 2013, although Inrom Industries Ltd., a maker of construction products, filed a prospectus last month to sell 350 million shekels ($101 million) of shares on the exchange.

The TA-25 index advanced 1 percent to 1,414.38 at the close in Tel Aviv today, the highest since April 7.

Mellanox Slumps

Mellanox shares have suffered more because of economic weakness in Europe, which affects the larger companies it supplies, rather than concern its valuations were unwarranted, said Brian Friedman, who manages the Israeli Investment Fund at GHP Investment Advisors in Denver.

“Mellanox is still a good company, but it has the traditional problems attached to niche players: a heavy concentration of customers and their revenues are quite lumpy,” Friedman, who helps oversee $880 million, said in a June 6 phone interview.

Brian Sparks, a Sunnyvale, California-based spokesman for Mellanox, declined to comment.

Wix.com Ltd., a provider of online tools to create websites, listed on the Nasdaq Stock Exchange in November in what was Israel’s largest IPO in the U.S. since 2007. The stock has tumbled 37 percent this year to $17.01, after reaching a peak of $31.32 on Feb. 27.

Nasdaq Underperforming

While the Standard & Poor’s 500 Index has rebounded from a dip in April to post a 5.5 percent return year-to-date, the Nasdaq Composite Index and the Russell 2000 Index of small companies are lagging behind shares in Tel Aviv. The Russell Index is up 0.1 percent this year, while the Nasdaq has risen 3.5 percent. The S&P North American Technology Internet Index is down 2.3 percent in 2014.

Equity indexes that include Israeli companies listed abroad may end up beating the Tel Aviv exchange if U.S. technology stocks find a bottom, said Schoenfeld, whose BlueStar Israel gauge is also lagging the TA-25 this year.

“The rubber band has stretched to the max,” Schoenfeld said. “It’s going to reverse if you have some recovery in small cap and technology stocks.”

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