Morgan Stanley gave the Tel Aviv Stock Exchange (TASE) a shot in the arm today. It has raised its recommendation for Israeli shares to "Overweight" from “Equal weight”. The recommendation came at the expense of the Cairo and Alexandria Stock Market (CASE), which was downgraded from "Overweight" to "Equal weight". It gave the TASE a boost in afternoon trading, sending the Tel Aviv 25 Index up 2%, before it ended the day with a gain of 1.32%.
The upgrade was based on an analysis of TASE returns and volatility. Morgan Stanley analyst Jonathan Garner says, "Israel currently has the lowest rolling 52-week beta to the MSCI EM."
The best performing emerging markets in the past three months were Indonesia, Egypt, and Russia, and the worst performing markets were Israel, Argentina, and Malaysia. The MSCI Israel Index fell 25.1% in the past three months, mainly because of the shekel's weakness against the dollar. The MSCI EM rose by 35.9% over the same period.
The upgrade will increase the recommended weight of the TASE in emerging market investment portfolios to 3.5% from 3%, which essentially raises Israel's weight by almost 20%.
Garner says, "The main drivers of the switch are relative valuations and beta. Investors should switch out of Egypt into Israel, because Israel has underperformed Egypt by 34% since February 6. Valuations rankings have therefore improved in Israel and deteriorated in Egypt."
Morgan Stanley ranked 20 emerging markets. Israel rose to third place from ninth place. Taiwan is still number one.
Published by Globes [online], Israel business news - www.globes-online.com - on May 18, 2009
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