Overseas Investors Recommend Increased Investment in Israel

Flemings Bank's regional desk, one of the outstanding desks for overseas investors' activity on the Israeli stock market, recommended considerably increasing investment in the Israeli market, at the expense of reducing investment in the Greek market. The desk, which monitors Europe, Africa, and the Middle East, makes its recommendation on the basis of the IFC emerging markets index, and specifically on the basis of the IFC index for countries in Europe, Africa, and the Middle East. The desk's recommendation now is to increase investment in the Israeli market to 40% above Israel's weight in this index, and, conversely, to reduce Greece's weight to 80% of its index weight. The explanation of this preference is the sharp rise recently posted by the Greek market, now considered expensive, and the lag in the Israeli market, which is a long way behind in dollar terms. Flemings points out that the Israeli market is now trading at a third of the value of the Greek market, and that the Israeli market is expected to rise, with a reduction of at least 2.5% in Bank of Israel interest rates in the course of the year. Flemings especially recommends the shares of Israeli banks, which are expected to benefit from the interest rate reduction, from lower than predicted allowances for doubtful debts, and from recovery in economic activity in Israel. The recommendation from Flemings Bank today is another in a series of recommendations from overseas investors on the Israeli market recently. It is estimated that foreign investors have been stepping up their activity in the Israeli market, which explains, among other things, the market's recent rises few days - although it is generally agreed that, this time, the advances were in fact led by local investors. Nevertheless, the reports of recent overseas investor activity are not consistent, and some Israeli banks claim that, for the time being, there is no noticeable revival in their interest. TASE Managing Director, Saul Bronfeld said today that "the continuation of privatization during the coming year will further increase the international interest in Israel." The TASE spokesperson said foreign analysts were optimistic regarding the market's future. In its February market commentary, Salomon Smith Barney analysts recommended increasing Israel's weighting in the emerging markets portfolio from 2.3% under the IFC's current benchmark to 7.3%, while ING Barings believes that the TASE share indices will rise by 19% in 1999, and that the inflation rate will fall to 5%. The bank's economists expect the TA 100 index to reach a level of 345 points by the end of the year.

Moreover the Israeli government is planning to offer 14% of the shares of Bezeq, Israel Telecommunication Corporation, for some $370 million in April. International investment banks are showing an avid interest in the offering, which is expected to be the largest ever in the history of the Tel Aviv Stock Exchange. The largest offering to date was the government's $300 million tender offer for 30% of Israel Chemicals' shares in December 1998. Recently the government and Bezeq chose the leading underwriters. The privatization of Israel's largest banks is continuing as well. The government also sold another block of Bank Leumi's shares, amounting to 2.5% of the bank's equity. The shares were sold to Lehman brothers, the winning bid in a tender that included Goldman Sachs and UBS. In April 1998, Lehman Brothers won a similar tender when it purchased 2% of Bank Leumi's shares. TASE's Managing Director, Saul Bronfeld said: "The success of privatization proves that the Tel Aviv Stock Exchange is an attractive venue for foreign investors. Despite the drop in the number of issues in recent months, the TASE's allure has not declined. Large, high quality companies continue to be a source of attraction for foreign and local investors. The continuation of privatization during the coming year will further increase the international interest in Israel." Foreign analysts are optimistic regarding the market's future.