Excellence: Israel could join MSCI Europe by end 2013

The investment house believes that if this happens, $2 billion could be injected into Israel's capital market.

Despite positive trends on the Tel Aviv Stock Exchange (TASE) of late, Israel's capital market still suffers from a lack of interest on the part of many investment institutions. This is reflected in the ongoing plunge in trading turnover on the TASE, which last week reported that the average daily turnover in November 2012 was less than NIS 1 billion.

Earlier this year, TASE traders still hoped that the turnover drought would end in 2013, because of support for a decision by Morgan Stanley Capital International (MSCI) to attach the TASE to the MSCI Europe Index, instead of the Europe-Middle East Index, where the TASE is currently included. However, a review by Excellence Nessuah indicates that such a decision, will come only in late 2013, if at all,.

Excellence Nessuah head of equity research Micha Goldberg is optimistic, saying, "In contrast to the last time the subject was considered, when investors clear signaled that Israel should not be included in the index, this time the initial responses received by MSCI are mixed, leaving room for a favorable result. Obviously, if the decision is favorable, it will be a positive move for the TASE."

The review began in June, when MSCI mentioned the matter in its annual review of expected changes in its indices. MSCI also mentioned the status of Greece, Morocco, South Korea, and other countries.

Goldberg says, "MSCI has not yet officially put the matter on the table. Responses from market players will affect the final official decision." He believes that favorable responses from market players will lead MSCI to officially ask the public for comments in February. He therefore believes that six months later, during the summer of 2013, MSCI will make an official decision to include Israel in the European Index, and the inclusion will be implemented at the end of the year.

Goldberg estimates the potential capital inflows to the TASE from inclusion in the MSCI Europe Index at $2 billion, mostly by funds that track the index. He believes that most of the money will go to Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA), and that Israel Chemicals Ltd. (TASE: ICL), Bank Hapoalim (TASE: POLI), Bank Leumi (TASE: LUMI), and Mellanox Technologies Ltd. (Nasdaq:MLNX; TASE:MLNX) will also see substantial flows of more than $100 million each. MSCI could follow the TASE and cap Teva's weight, which could increase potential flows to other shares," he says.

Goldberg estimates the weight of the TASE on the MSCI Europe Index at 0.85%, compared with its weight of 0.25% on the MSCI Global Index.

Trillions of dollars are invested in funds that track MSCI indices, with most of the money reportedly invested in funds that track developed markets.

Two years ago, in May 2010, MSCI transferred Israel from its emerging market index to its developed market index. In the emerging markets index, Israel had a weight of 3%, but Israel's weight in the developed market index is less than 0.5%. As a consequence, the foreign investment funds had less motivation to look at investment in Israel, making it harder for Israeli companies to interest foreign investors in buying their shares.

Published by Globes [online], Israel business news - www.globes-online.com - on December 13, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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