Someone called us recently to ask about a newish ETF called the SPDR Emerging Middle East & Africa (Amex: GAF). The ETF
is heavily weighted around three countries — South Africa (65%), Israel (17%) and Egypt (6%).
There are other ETFs that include exposure to Israel but as far as we know, this ETF currently has the largest exposure.
Israel as a destination
We like Israel (but hey, we’re biased). While Israel is not putting up double-digit GDP growth like China, we are seeing close to 4-5%.
Not too shabby.
Foreign capital is flowing
We’re continuing to see money coming into Israel looking for a home. Canaan Partners just announced another fund that will be targeting opportunities in Israel.
Can Israel do better?
And if you ask Netanyahu [subscription required], we could see close to 8%, if certain pro-market policies are put into place. Even Netanyahu’s detractors credit his cuts in welfare benefits, the removal of remaining currency and capital controls, and liberalization of the banking sector as cutting the way for an amazing economic recovery.
Check out Eze Vidra’s post, “Israel 2008: What the Bulls and the Bears are saying“, for some good forecasts of what various analysts are looking for from the Israeli economy in 2008.
What does the ETF hold?
Check out the GAF’s holdings. What you’ll see is that Israel’s 11% weighting is driven by the fact that Teva Pharmaceuticals (Nasdaq: TEVA) is the ETF’s largest holding at over a whopping 9%. We then see Israel Chemical (2%), Bank Leumi (1.43%) and Bank Hapoalim (1.41%). Elbit Systems (Nasdaq: ESLT) is also in there (1.06%). The rest of the Israel holdings each account for less than 1% of the SPDR Emerging Middle East & Africa Fund.
Investors in Israel from abroad may like the fact that this fund holds locally traded companies that aren’t dually listed or carry a corresponding ADR in the US.
So, what’s an investor interested in Israel to do?
That said, 17% of a fund that has exposure to really different economies may not be enough for foreign investors looking to trade locally-traded Israeli shares. Also, TEVA’s weighting at 9% of the overall fund means that Teva alone accounts for over 50% of the total Israeli exposure.
Teva may be a great company but it’s not indicative of the Israeli market as a whole. I’d like to see more exposure to Israel Chemicals, the Israeli banks, Bezeq, 012.Smile (Nasdaq: SMLC), the Mobile phone carries including Partner (Nasdaq: PTNR) and Cellcom (NYSE: CEL), let alone all the newer, smaller, tech firms listed locally.
What about mobile fixed telecom players like Alvarion (Nasdaq: ALVR) and Ceragon (Nasdaq: CRNT)? Both have taken a worse beating than Britney has received from the paparazzi.
I’d like to see a country ETF also include local retailers like Blue Square-Israel (NYSE: BSI)
Israel investors may be better off weighting for new offerings in the works as we hear that Barclays and another firm has an Israel ETF in registration.
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Aaron Katsman
www.IsraelNewsletter.com
In an ironic twist, the Israeli Ministry of Communictaion, is going to try and take a more active role in solving problems that have beset cellular companies, like Partner(PTNR) and Cellcom(CEL), as they try to deal with customers switching providers and keeping their same phone number. In what was hailed as a victory for the consumer, the government’s ineptness to provide solutions and guidelines that both work and are efficient, have caused major delays for those trying to take advantage of the new law.
As I mentioned in a previous post when the program started, the ministry did a poor job of getting the word out about the new program and many consumers didn’t even know that they were now able to keep their cell number but switch carriers. Now there is another issue; a problem in data verification procedures between the companies, which has resulted in bureaucratic difficulties and delays in portability. Why does this problem exist? You guessed it. The ministry can’t figure out what to do. Communications industry sources claim that the ministry has not finalized its own number portability procedures and that it issues new guidelines on the subject every few days.
I am shocked! But what gets even sadder( or funnier- depending on perspective) is that “The Ministry of Communications also announced today that it intended to expedite the handling of problems and to take a more active supervisory role.”
Now I feel confident that the problems will get taken care of. Not.
Disclosure: Author’s fund holds no position in any stock mentioned, as of 12/13/07.
Please see our Disclaimer HERE.
NEW! Introducing Israel Opportunity Investor, our monthly subscription-only newsletter. Stay ahead of the game and make smart decisions in Israel stocks. Go here to learn more.
Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.
Aaron Katsman
www.IsraelNewsletter.com
The new law enacted by the Israeli Ministry of Communication enabling consumers to switch cellphonecarriers while keeping their existing phone number has gone into effect. Reports are that only a few hundred consumers have actually switched carriers. Part of the problem is that most consumers don’t even know that there is such a law.
In a very unofficial poll that I took both on the street and in my office, about 75% of the respondents didn’t even know that this change was happening. It’s ironic that a reform that is intended to benefit consumers, hasn’t even been brought to their attention. Oh the wonders of government! Even when they try and do something beneficial, they screw it up.
This lack of customer awareness may actually be quite beneficial for both Partner(PTNR) and Cellcom(CEL). Both companies were expected to increase marketing costs substantially in order to both attract new, and keep old customers. The fact that nothing is going on will help them keep their costs in check.
Check out Zack Miller’s analysis of the Israeli cellular industry.
Please see our Disclaimer HERE.
Disclosure: Author has no positions in any other stock mentioned as of 12/02/07.
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Aaron Katsman is the lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.
