Intro to the Israeli Capital Market

Evan Liberman Articles, Bonds, Invest in Israel, Israeli Market 0 Comments

Before you start investing in the Israeli capital market, it is worth taking a few moments to familiarize yourself with some of the basics about the market itself. The Israeli capital market is comprised of the stocks and bondstraded on the [post=1165 text="Tel Aviv Stock Exchange (TASE)"]. Here, Israeli businesses and the government of Israel issue their equity and debt in the form of equity shares and bond debentures. The market is regulated by the Israel Securities Authority, a government regulatory body established under the Israel Securities Law of 1968, and its mandate is to protect the interests of the investing public. Initial public offerings (IPO) are issued and existing securities are bought and sold among investors, institutions and traders on the electronically-traded TASE.

Stocks

There are 736 companies listed on this single, national exchange. Some of these companies are local corporations with less than 10 million NIS ($2.5M) capitalization, while some are international powerhouses with over $50 billion in market cap, such as Teva Pharmaceutical Industries. Including convertible bonds (which can behave like stocks), there are over 1,000 stocks traded in the Israeli stock market, with a total daily volume of $800 million. There are also [post=83 text="over 130 Israeli companies traded on other exchanges"], including the NYSE, NASDAQ, and AMEX U.S. exchanges, meaning investors may purchase Israeli company stocks in their own currency through their own broker or online account. Individual investors can also easily participate in corporate IPOs, which include some of Israel's leading-edge technology firms.

Bonds

In addition to a vibrant stock market, the Tel Aviv Stock exchange has a highly liquid government and corporate bond market. Here, one can buy and sell bonds online immediately like stocks, with very small bid-ask spreads. [post=766 text="Israel Government Bonds"] and corporate debentures include short, mid and long-term fix-rate, variable-rate, and cost-of-living indexed bonds. Daily bond trading volume is $760 million.

Exposure to Israeli currency

Securities (stocks and bonds) on the TASE are bought and sold in Israeli Shekels (NIS), providing the foreign investor currency diversification. There are other investment vehicles to hedge against foreign currency fluctuations and investment mechanisms to index to a particular currency, such as foreign currency options, futures and forwards.

Other financial vehicles

The Israeli capital market has a multitude of ETFs (Exchange Traded Funds) for both stocks, bonds and stock/bond indexes. You can invest in convertible bonds, Treasury bills, index mutual funds, and stock/bond mutual funds. There are other investment opportunities for the sophisticated investor including derivatives (options, etc.), warrants, futures, forwards, currency ETFs and hedging, structures and commodity ETFs. See [post=3507] for a full list of investment choices in Israel.

The Exchange

The TASE's automated exchange system allows for continuous, simultaneous and instant electronic trading by retail (individual) and institutional investors alike. This system ranks with the most advanced trading systems used by the world's leading stock exchanges. Financial reports are published quarterly online, as on Wall Street. Israeli companies use the International Financial Reporting Standards (IFRS), which is taking over for the GAAP reporting method as the international standard. The individual investor transacts through one of the [post=1165 text="28 Israeli financial firms"] TASE members, which include banks, insurance companies, and investment brokerages. A few of the members are Citibank, Merrill Lynch (Bank of America), UBS Securities Israel, Bank Hapoalim, and Bank Leumi. Both an Israeli and a non-Israeli investor can manage their portfolio independently. You can also opt to have it managed by professional portfolio managers.

Suitability to different types of investors

The TASE includes market makers to provide liquidity for traded securities. The market provides investment mechanisms for both long and short sellers, margin account, and leveraged investments. The market is suitable for the long-term investor, the mid-term investor, swing trader and even day-trader (as the market is open on Sundays and hours when many world markets are closed).

Tax considerations

If you reside outside of Israel for 183 days a year or more, you are exempt from paying Israeli tax on your capital gains, dividends and interest paid, on the assumption that taxes will be paid in the resident's home country. For Israeli residents, there is a relatively low tax on capital gains, which is taken at the source (by the brokerage) at a 15% level for gains on adjustable- and fixed-rate bonds and non-inflation-indexed interest, and 20% on all other gains (in real-terms, beyond inflation), including stock capital gains, indexed bonds, dividends and inflation-indexed interest income. The rate applies to all holding durations: there is no higher rate for short-term capital gains.

Wall Street investor?

If you are already familiar with Wall Street, you might like to read about some interesting similarities and differences between the Israeli market and the U.S. capital market. This will be covered in another article. Of course, the Israeli capital market is affected by news events, so keep reading Wise Money Israel's news section to understand how these events affect investment in Israel.

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