® BlueStar Israel Equity Review & Outlook April/May 2016
The BlueStar Indexes® Monthly Update covers Israeli equities traded worldwide. The BlueStar Israel Global Index® (BIGI® or BLS:IND on Bloomberg) is used as the benchmark for our review as it represents the complete opportunity set of Israeli equities. BIGI® is tracked by the NYSE-listed ISRA Israel ETF, by two TASE-listed ETNs, and by an Israeli-registered mutual fund. Israel has one of the world’s most resilient economies, its technology sector is a global innovation leader, and its companies have a global footprint. The Update provides insight into macro forces, the geopolitical environment in which Israel’s economy operates, and the individual company investment opportunities that have contributed to Israeli Global Equities’ impressive long-term performance. “Slip sliding away” May 4, 2016
Israeli Global Equities, as measured by BIGI®, could not sustain their momentum and declined 2.15% in April. The divergence with other Israeli equity benchmarks was primarily attributable to sharp declines in stocks that are included in BIGI® but not the other primary Israeli equity indexes. (See below for more details.)
The performance of Israeli Global Technology Equities, as measured by our TA-BIGITech® benchmark, was also disappointing as the index declined just short of 1.00%.
Seven of the ten industry sectors tracked by BIGI® posted gains in April, with the best performance coming from the materials sector, driven by a 15%+ rise in Israel Chemicals. The stock specific factors noted above hit the health care and IT sectors, pushing them down 6.93% and 3.55%,, respectively. The decline in health care was paced by Perrigo, which fell almost 25% after pre-announcing Q1-2016 results that were well below the company’s previous guidance and the departure of its CEO. In IT, Mellanox Technologies fell sharply, also after lowering its guidance for Q2. (Commentary continued on following page.)
BlueStar Israel Global Index ® Global Equity Benchmark Comparison: Relative Performance Since 2010 April 2016 200.00
180.00 Benchmark Period Return
160.00 BIGI® -2.15% TA-100 140.00 MSCI Israel 1.03% S&P 500 120.00 BIGI TA-100 -0.33% EIS 100.00 S&P 500 0.27%
80.00 MSCI EAFE 2.22%
60.00 MSCI EM 0.41% 3/1/2010 17/01/11 31/01/12 3/22/2013 3/27/2014 4/2/2015 4/7/2016
TASE-BlueStar Israel Global Technology Index® Global Technology Stock Index Comparison: Relative Performance Since 2010 275 April 2016 255
235 Benchmark Period Return BIGITech 215 ® 195 BIGITech -0.99% 175 NQ-100 Nasdaq-100 -3.17% 155 S&P Global Tech -4.82% 135 Global 115 Tech TA- BlueTech 3.97% (IXN) 95 EM Internet & E-commerce 1.51% 75 01/04/10 01/04/11 01/04/12 01/04/13 01/04/14 01/04/15 01/04/16 © 2016 BlueStar Global Investors, LLC The opinions expressed in this report are those of BlueStar Global Investors, LLC and should not be interpreted as a 1 recommendation to buy or sell any security. Readers should consult with a financial professional before investing. BlueStar Israel Equity Review & Outlook March/April 2016
Israeli macroeconomic data released in April was skewed to the negative and highlights increased risks to growth. Inflation, and more importantly, market inflation expectations remain well below the Bank of Israel’s (BoI) 1.5% - 3.0% target range. The Israeli Shekel continues to appreciate against both the Dollar and Euro, which is proving to be a significant headwind to exports. During the first quarter of 2016 exports of goods and services declined by 4.6% y-o-y, as the stronger shekel and weaker end user demand began to bite. There has been speculation in the local Israeli media that the BoI will have to intervene in the FX market if it wants to stem the rise of the Shekel. Although not imminent, we view this as a more likely outcome than a move to negative interest rates.
BlueStar Bottom Line: The outlook for Israeli Global Equities is mixed. On a technical basis, indexes appear to be precariously poised at an inflection point, with strong signs that the next move could be lower. On a fundamental level, individual stock moves will be dictated by Q1-2016 results and corporate guidance for the rest of the year. Finally, the usual macroeconomic risks remain in place: earlier than expected U.S. interest rate increases, continued weakness in global growth and European political and economic turmoil ahead of June’s referendum in Britain on continued membership in the E.U.
Top Israeli Equity Gainers and Losers: April 2016 Israeli Equity Sector Performance: April 2016
Top-performing Israeli Stocks Worst-performing Israeli Stocks GICS Sector Return
Israel Corp 22.18% Chiasma -63.21% Materials 10.02% Wix.Com 21.95% Perrigo Co Plc -24.44% Industrials 5.67% Compugen 21.51% Mellanox Technologies -20.39% Utilities 5.24% Neuroderm 21.18% Silicom -19.13% Consumer Disc. 5.03% Fox Wizel 19.79% Perion Networks -16.92% Consumer Staples 3.16% Israel Chemicals 15.59% Radware -8.71% Financials 2.15% Evogene 13.77% Imperva -7.96% Energy 0.90% Blue Square Real Estate 13.76% Audiocodes -6.45% Telecom. Services -2.00% Pluristem Therapeutics 11.18% Amdocs -6.42% Info. Technology -3.55% Partner Comm. 10.63% Telit Communications -6.40% Health Care -6.93% Source: BlueStar Global Investors LLC; Currency-Adjusted returns in dollar terms
© 2016 BlueStar Global Investors, LLC 2 The opinions expressed in this report are those of BlueStar Global Investors, LLC and should not be interpreted as a recommendation to buy or sell any security. Readers should consult with a financial professional before investing. Market Trends & Technical Analysis: BIGI®
Strong Resistance Area
Resistance Area
Support Area
In the first half of April BIGI® was able to move higher to test the underside of the neckline of the multi-year head and shoulders topping formation. The index pulled back sharply in the second half of the month, in line with other developed equity markets. The overall trend is bearish as the index remains below the 5- year upward sloping red trend lines that were broken earlier this year. The rally off of February 2016’s lows appears to be a relief rally to test former support- turned-resistance. BIGI® is at a crucial inflection point and appears to be consolidating between the areas labeled “resistance area” and “support area” on the chart above. However, because the 5-year trend lines have been broken and because of the sharp pullback from the neck line resistance and the 200-day moving average (shown on the following page), the next move will likely to be to the downside.
Strong Resistance Area
Resistance Area
Support Area
© 2016 BlueStar Global Investors, LLC The opinions expressed in this report are those of BlueStar Global Investors, LLC and should not be interpreted as a 3 recommendation to buy or sell any security. Readers should consult with a financial professional before investing. Market Trends & Technical Analysis: BIGI®
Last month: The break above the 50-day moving average was convincing. If the Israeli market actually bottomed in Q1, it is highly likely that BIGI® will at least test the 50-day average before resuming its upward momentum. However, until the 50-day is tested and holds, it still appears that we are in a relief rally off a very oversold level before another leg lower. Additionally the strong upward move since mid February does not change the fact that the 50-day average is below the 200-day average and the 200-day average is downward sloping.
This month: The sharp pullback after a brief test of the 200-day average is decidedly bearish. Additionally, because the 50-day moving average did not hold as support, this chart confirms that the underlying trend for the index is down. While February 2016’s lows are now a clear potential support level, the probability that the index will test or break down below those levels is increasing.
The breakout above the 30- and 100-day average last month was a fake- out. While the index ended the month exactly on the 100-day average, that average is still clearly downward sloping. Also, the shortest-term smoothing mechanism we use, the 30-day average, would have held as support if the Israeli equity market was truly in rebound mode. That average now appears to be rolling over.
4 Market Trends & Technical Analysis: BIGITech®
Strong Resistance Area
Support Area
Last month: TA-BIGITech® moved sharply higher in March, confirming our view that the index ended February in an oversold condition. The index is quite close to testing the underside of the upward sloping red trend lines which are likely to serve as an area of strong resistance. Although it is possible that the index has some more upside to the 190-195 area from here, the risks are skewed to the downside. But, the “support area” represented by the convergence of all green support/trend lines will not be easily broken.
This month: We are likely to see a period of consolidation below the upward sloping red trend lines, which were confirmed as resistance in April, before another move lower. The TA-BIGITech® index is somewhat more bullish than BIGI® because it did not pull back as sharply and is significantly further above its key support levels. This means that even if TA-BIGITech ® pulls back by several percentage points in the next few weeks, it will have a better chance of remaining above critical support. It is important to note that when resistance lines are sloping upward, the index can appear to be bullish by making a series of higher highs and higher lows, but if these higher highs and higher lows are occurring under resistance lines it could ultimately become a bearish consolidation pattern.
© 2016 BlueStar Global Investors, LLC 5 The opinions expressed in this report are those of BlueStar Global Investors, LLC and should not be interpreted as a recommendation to buy or sell any security. Readers should consult with a financial professional before investing. Market Trends & Technical Analysis: Israeli Shekel vs U.S. Dollar
Upside for the Shekel still exists though we see it limited to approximately $0.275, represented by the thin black horizontal resistance line on the chart above. Support for the Shekel will remain close to $0.245, represented by the parallel red support lines on the chart above. Developments in global monetary policy are very fluid right now though the Bank of Israel has made it clear that it does not intend to lower interest rates further which should support the shekel.
6 Israel: the Go-To Destination for Global Technology Companies
In this monthly feature we highlight the attractiveness of the Israeli technology sector by noting significant recent capital markets and M&A activity. This secular trend demonstrates that Israel is a key destination for global companies seeking to acquire cutting-edge technologies and that the strength of the sector is increasingly encouraging Israeli companies to make acquisitions abroad.
• Elbit Systems’ (Nasdaq: ESLT; TASE: ESLT) Cyberbit received contracts to supply intelligence and cyber analysis and research systems for a Asian country for an aggregate amount of approximately $22 million. The systems will be supplied over a two year period. Elbit said that the systems to be supplied consisted of Cyberbit's WiT system, which it described as a highly advanced end-to-end intelligence and investigation solution that supports every stage of the intelligence process, including the collection of the data from multiple sources, databases and sensors, processing of the information, supporting research, analysis and evaluation of the information with advanced analysis tools and disseminating the intelligence to the intended recipient.
• Security solutions provider Magal Security Systems Ltd., (Nasdaq: MAGS) is acquiring Ontario-based video camera security software solutions provider Aimetis at an enterprise value of $14 millon. Aimetis’ products are sold through distributors in over 100 countries.
• Twist Bioscience, a San Francisco-based company accelerating science and innovation through rapid, high-quality DNA synthesis, acquired privately-held Genome Compiler Corp., an Israeli company providing software for genetic engineers, molecular and synthetic biologists. Financial details of the transaction were not disclosed. Twist said it intends to leverage Genome Compiler’s technology and expertise to drive a digital products portfolio, including an eCommerce solution with gene design capabilities, expected to be available in the second half of 2016.
• Cadence Design Systems Inc. (Nasdaq: CDNS) acquired Israeli startup Rockettick Technologies, Ltd. For a reported $40 million. Cadence said that Rocketick's technology speeds up its chip development capabilities several times over.
• Software giant Oracle Corp. (NYSE: ORCL) acquired Israeli big data company Crosswise for a reported $50 million. Crosswise has developed a cross-device identification system based on big data, data science and machine learning that identifies, which PCs, phones, tablets, digital TVs and other connected devices are being used by individual consumers.
• Elbit Medical Technologies Ltd. (TASE:EMTC) said its InSightec Image Guided Treatment Ltd. signed a non-binding memorandum of understanding with a major international imaging company for joint adaptation of their devices. InSightec's commercial devices are currently compatible only with imaging devices made by GE, which also holds a 10% stake in Insightec.
• U.S. private equity fund Francisco Partners has acquired Israeli company SintecMedia for $400 million. Sintec develops Internet-based management applications and software systems for broadcasters.
© 2016 BlueStar Global Investors, LLC 7 The opinions expressed in this report are those of BlueStar Global Investors, LLC and should not be interpreted as a recommendation to buy or sell any security. Readers should consult with a financial professional before investing.