"I see no substantial effect on the Israeli market, which is mainly being affected by the under-performance of pharmaceuticals stocks. The effect of the violent weekend on the Israeli market will be minor, if any. It should be borne in mind that we are in the summer months, and so I do not expect high volatility," Leumi Capital Markets derivatives manager Daniel Rapoport said yesterday evening.
"The French part of the violence at the weekend began on Thursday night, and there was trading in both Europe and the US on Friday," Rapoport continued, "The market reacted moderately, and it seems that the incident in France has passed without causing shocks. The Turkish part began on Friday night, and the immediate reaction was a 5% drop in the value of the Turkish lira. In the end, Erdogan regained control of the situation, and I therefore estimate that the lira will recover as soon as trading restarts.
"Turkey is a developing market. To put things in perspective, it should be recalled that the leading indices on Wall Street have risen 5% so far this year, our market has fallen by about 4.5%, while the Turkish market has risen by 15%. It can be assumed from this that the effect of the weekend's events in Turkey will be profit taking on the Turkish market and a strengthening of the lira, but no broader effect is to be expected."
Rapoport estimates that the European market will continue to under-perform in comparison with the US market. "The US reporting season began optimistically. All in all, the economy there is alright, the macro data are positive, and so it looks as though the trend there will continue," he says.
As far as the local Israeli market is concerned, Rapoport estimates that the Israeli stock exchange is suffering from under-performance chiefly because of the under-performance of the pharmaceuticals stocks whose weighting in the Tel Aviv 25 Index is 25% (Teva, Mylan, Perrigo, and Opko Health). Teva is at a challenging point. It is due to raise $20-25 billion this week. Perrigo is still absorbing the change of personnel in its top management. Only Mylan has performed reasonably well.
"The effect on us will not be substantial," Rapoport concludes, "The Tel Aviv Stock Exchange did well last week, so we think there could be a rebound, but on the whole the Israeli market should perform reasonably well, and so our recommendation remains the same: to stay with exposure to the stock market, certainly for as long as the interest rate environment remains low."
Published by Globes [online], Israel business news - www.globes-online.com - on July 17, 2016
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