Gaza-Sparked Slide Gives Way to Rebound in Israel Stocks

A day after Israeli stocks slumped in New York as the country sent soldiers into the Gaza Strip, the market rebounded to erase all of the losses.

The reversal reflects optimism that the Israeli military’s ground operation in Gaza to quash barrages of rocket fire won’t drag out into a prolonged conflict. Drugmaker Protalix BioTherapeutics Inc. led a 1.3 percent gain on the Bloomberg Israel-US Equity Index on July 18. The benchmark rebounded from a 1 percent drop on July 17 when Israel announced the movement of troops and tanks into the Hamas-controlled coastal enclave. Exchange-traded funds holding Israeli shares also rose on the last trading day of the week in the U.S.

“People are betting that this will be a short-lived conflict, relatively contained,” Bruce Schoenfeld, research director at New York-based BlueStar Global Investors LLC, said in a July 18 telephone interview. “The Israeli traded ETFs are both up pretty strong today. They’re pricing in a local market rebound on Sunday.”

Israeli Prime Minister Benjamin Netanyahu said he’s preparing to widen the ground operation which began after more than 2,000 air strikes over 10 days failed to stop missiles fired by Hamas and other Palestinian militants at Israel. Diplomatic efforts to help broker a cease-fire accelerated as United Nations Secretary General Ban Ki-moon headed to the region yesterday, while Palestinian President Mahmoud Abbas, whose Fatah faction controls part of the West Bank, has met with Turkish Prime Minister Recep Tayyip Erdogan and Egyptian President Abdel-Fattah El-Sisi.

Shekel, Stocks

The Bloomberg Israel-U.S. index climbed 1.3 percent last week, led by an 8.5 percent jump in shares of Mellanox Technologies Ltd. after the company was upgraded to a buy rating by Jefferies Group LLC. The shekel was little changed for the week at 3.4284 after posting the biggest decline in two months on July 17.

BlackRock Inc.’s $135 million iShares MSCI Israel Capped ETF added 1.2 percent on July 18, erasing a similar drop the day before, while the $49 million Market Vectors Israel ETF advanced 1.3 percent.

Israel has clashed with Gaza militants repeatedly since 2005, when it ended its 38-year occupation of the territory while restricting, along with Egypt, the movement of its people and goods by controlling border crossings. At least 340 Palestinians have been killed since fighting intensified about two weeks ago.

Muted Impact

“As long as this is considered to just be a skirmish between Israel and Hamas, I just don’t think it’s going to matter to the markets,” Hayes Miller, who helps oversee $57 billion at Baring Asset Management Inc., said by phone from Boston on July 18.

The clash has had a muted impact on Israel’s local markets thus far. The TA-25 index is up 2.6 percent since the conflict began July 8, compared with a 0.4 percent decline on the MSCI World Index of developed-nation stocks.

Israeli stocks traded in New York have risen 0.3 percent in the same period. U.S. shares of Protalix gained 3.7 percent to $3.40 on July 18 and traded at a 12-cent premium to Tel Aviv, while Perrigo Co., the largest maker of generic over-the-counter medicines in the U.S., had about a 70-cent premium.

The objective of the ground incursion is to go after “terror tunnels” that have eluded the air force and restore peace to Israel, Netanyahu said in televised comments July 18. Israeli forces have uncovered 26 tunnel entrances since entering Gaza, the army said, providing photographs that show concrete-lined passageways snaking under the border area.

The UN called on Israel to show restraint and the U.S. called for a pinpoint strike against tunnels in line with the directive Netanyahu set out. Abbas, who traveled to Egypt seeking a cease-fire, warned that the incursion would complicate the situation, according to the official Palestinian news agency Wafa.