In May, Israel will be reclassified as a developed market by MSCI Barra Inc. (NYSE: MXB) means that Israel will be included in three of its indices: the MSCI World, MSCI EAFE, and the Kokusai. Given worries in the Israeli capital market that the reclassification will reduce the Tel Aviv Stock Exchange's (TASE) weight to 0.39% in the new indices from 2.87% in the current MSCI Emerging Market Index, UBS held a two-day conference in London for foreign investors in the Israeli market.
Longstanding investors in emerging markets who already know about Israel are attending the "Best of Israel" conference. They have been joined by investors in developed markets who came to learn about Israel.
The conference's goal was straightforward: to introduce investors to the Israel's best companies in order to attract investors to the market. Senior UBS managers told "Globes" that results were satisfactory, and that investors showed great interest in Israeli companies.
12 Israeli companies also participated in the conference: Israel Chemicals Ltd. (TASE: ICL) and Makhteshim Agan Industries Ltd. (TASE: MAIN), Bank Hapoalim (TASE: POLI), Israel Discount Bank (TASE: DSCT), Mizrahi Tefahot Bank (TASE:MZTF), Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR), Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL), Bezeq The Israeli Telecommunication Co. Ltd. (TASE: BEZQ), Elbit Systems Ltd. (Nasdaq: ESLT; TASE: ESLT), Strauss Group Ltd. (TASE:STRS), a target=new href=http://www.frutarom.com/>Frutarom Industries Ltd. (TASE: FRUT; LSE:FRUT; Pink Sheets:FRUTF), and Delek Group Ltd. (TASE: DLEKG).
UBS analyst Roni Biron, who covers chemicals and high-tech companies, said, "Belying early worries of abandonment and disinterest by investors following the switch to the family of developed markets, interest in Israel was actually quite high. Naturally, chemicals companies attracted a lot of interest, as always, as did communications providers."
UBS Israel securities manager Ady Vigodsky said, "There's potential here for more investors, but the type of investment will be different; it will be more sector-based. Investors in developed markets aren’t looking to invest in a particular country, but in a particular industry. We also saw that they had little knowledge Israel's macroeconomic figures, so we stressed the economy's robustness. They initially thought that the economy was very strongly affected by politics and the diplomatic conditions. We explained that politics barely has an impact."
Although it is premature to predict the winners and losers from Israel reclassification to a developed market, analysts believe that it may hurt bank stocks, because Israeli banks have no unique characteristics compared with European and US banks. The stability of Israeli banks stood out among their emerging market peers, because of strong regulations. Israel's banks will find it harder to stand out among their developed market peers.
Vigodsky added, "It will be harder to sell Israeli banks to investors. In emerging markets, investors seeking safety invested in Israeli banks. In the developed world, the Israeli banking system has no unique characteristics, so investors will have no reason to learn about the banking system, if it is just the same as in Europe, for example."
Israeli chemicals and telecommunications companies could be winners from the reclassification. Biron says, "In the developed markets, it will be a lot easier to sell the chemicals and telecommunications industries because they have unique elements." He cites as an example, the high dividend yields by Israeli telecommunications companies in 2010, which will reportedly reach 17%. He also noted Israel Chemicals' access to the Dead Sea, which makes it possible for the company to save potassium inventory for much long periods compared with its competitors.
UBS is planning a "Best in Israel" conference in New York in early December.
Published by Globes [online], Israel business news - www.globes-online.com - on October 5, 2009
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