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(photo credit: Bloomberg)
The Tel Aviv Stock Exchange continued to set records on Wednesday as the TA-100 share index broke the psychological barrier of 1,000 points for the first time, led by this week's strong macroeconomic growth forecasts, and shares of the large banks and real estate companies.
"The 1,000 points barrier is just a nice round number, a psychological point and a historic record," said Tamir Porat, deputy manager of investments at Clal Finance Batucha. "But there is continued positive momentum in the market driven by very good macroeconomic data, despite the second Lebanon war and other geopolitical threats; continued quarter-on-quarter profitability of the companies traded on the market; and the fact that the major credit rating agencies have raised the country's outlook."
The TA-100 index climbed 0.9 percent to 1,002 points, driven by banking stocks. Bank Hapoalim rose 2.4%, to NIS 20.70, while Bank Leumi advanced 2%, to NIS 17.97.
It was 15 years ago that the Tel Aviv Stock Exchange reset its indexes and started the TA-100 index at 100 points.
Also Wednesday, the Tel Aviv-25 benchmark index rose 1.2% to 992 points.
"I believe the positive momentum in the market will continue and it will not be long before we could see the TA-25 breaching the 1,000 barrier," said Porat.
Wednesday's stock market gains continued from the day before as investment houses and the Standard & Poor's rating agency raised their economic outlooks for Israel. On Tuesday, the TA-25 Index broke the 980 point for the first time, marking the fourth anniversary of a rally.
On the same day, Morgan Stanley and Excellence Nessuah Securities & Investments Ltd. forecasted that economic growth would exceed expectations this year because of low interest rates and a strong shekel. "Low inflation, and in particular low interest rates, are fuelling demand in the stock market," said Amir Hayet, chief analyst at Union Bank.
Morgan Stanley raised its estimate for gross domestic product growth to 5% from 4.5%, while Excellence Nessuah increased its forecast to 5.6% from 4%. Meanwhile, Standard & Poor's on Tuesday raised its outlook on Israel's credit rating to "positive" from "stable," citing a shrinking government budget deficit, a widening current account surplus and a growing economy.
"Strong economic data and growing profitability of companies is what drives the market, and thus we believe the market will continue to uphold its rally beyond the 1,000 points hurdle," said Meir Mazuz, deputy CEO at Harel Pia. He recommends stocks in the banking sector, the insurance market and, selectively, in the real estate sector. "Stocks are not cheap but they are not bubbled," he said.
Porat at Clal Finance Batucha expects the TA-100 market stocks to trade at a multiple of 17 in 2007, which is higher in comparison to the average on the MSCI global equity index.
However, some analysts and investment advisers are more wary, raising concerns about more stock gains in the market.
"Historically, when a stock market index touches a psychologically significant point, it can't be sustained and pulls back, at least for a bit," said Yair Alek, CEO of Axioma Investments. "This is even more likely in a market that has experienced four years of two-digit returns and statistically is on the verge of a downturn in the cycle."
Alek warned that 2007 would be a cool one for investors. "Maybe in the short-term we will continue to see some more gains, but looking ahead, we will see downward corrections of 20% to 30% in the stock market, he said. "We recommend for investors to place 5% to 10% of their portfolio into the local market."