Five Possibile Short-Term Israeli Casualties of Large Redemptions

by: Aaron Katsman

With news that local Israeli investors had redeemed more the 1 billion shekels (about $240 million) from mutual funds in the last few weeks, I started thinking about how this large redemption could affect Israeli shares which are dually listed, trading in both Tel Aviv and in the United States.

Interestingly enough, it appears that the Israeli market has suffered in each of the last nine summers, posting losses of between 5 and 17% in each (Tel Aviv 100 index). For investors in the U.S .who want exposure to Israeli shares you need to watch out. If you look at the TA 25 index (large cap), for example, you will see that Teva (NYSE:TEVA), Partner Communication (NASDAQ:PTNR), Ormat (NYSE:ORA), Elbit Systems (NASDAQ:ESLT) and NICE Systems (NASDAQ:NICE) have a combined total weighting of about 20% of the total index.

If these redemptions continue, and the seasonality of local Israeli stock weakness comes into play, these five stocks could be short-term casualties, just because of local fund managers needing to sell to free up money for the redemptions. It’s also important to note that there has been a huge breakthrough of local Israeli ETFs, and index funds. Again, if we were to see a wave of selling hit, then they are going to be paring back proportionally, once again impacting these stocks.

Here at we have written positively on all five of these companies, and I am long all of them with an eye for the long term. For you short term traders who like trading in Israeli stocks, you may want to be cautious on these five names, for the technical reason given above.

Disclosure: The author’s fund is long ORA, TEVA, PTNR, NICE, and ESLT, as of June 14, 2007.