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U.S. investors back weak Israeli stock

THE BALTIMORE SUN

The Tel Aviv stock market has plunged nearly 40 percent this year, rocked by a combination of political and economic worries. But that hasn't shaken Baltimore accountant Sheldon J. Berman's faith in Israeli companies.

"We are bullish on Israel," said Mr. Berman, treasurer and investment committee chairman of three Baltimore investment clubs that invest in Israeli companies.

In fact, despite this year's market slide and a general drop in optimism among Wall Street investors, a particular brand of attachment and loyalty to this flagging sector of the market remains extraordinarily strong. Thousands of American Jews have chosen to risk the volatilities of investing in Israeli companies that trade on U.S. exchanges.

While many are motivated by the obvious goal of making a profit, a clearly substantial number find their reward elsewhere.

"One of the most fundamental ways to help [Israel] is to promote the economy," said Joshua Mauer, executive director of the Baltimore Zionist Organization of America. "By investing in companies currently on American exchanges, you are creating a market for other companies. When they grow, they employ more Israelis; when they employ more Israelis, the economy grows."

Baltimore's three Israel investment clubs, which are sponsored by the Zionist Organization of America, have 125 or so other members. It is not clear how many such clubs exist around the country, but Detroit investor Malcolm Z. Leventon guesses there are about 100. He manages four in Detroit, and has helped start 20 others around the country since 1992.

U.S. investors' interest in Israel has grown significantly during the past decade. While figures for total U.S. investment in Israel are sketchy, the Bank of Israel said in May that net investment in Israel by all foreigners jumped 42 percent last year to $751 million, pulled by the lure of the then-rising Tel Aviv Stock Exchange and a strong real estate market.

In the United States, the emergence of Israeli companies on U.S. securities exchanges -- where U.S. securities laws apply and where investors can keep their investments in dollars -- has been partly responsible for a surge in the interest.

About 60 Israeli companies list themselves on U.S. stock exchanges, making Israel second only to Canada among foreign countries with companies traded on American securities markets. By listing themselves on U.S. exchanges, Israeli companies tap into a far larger pool of investors. They can raise millions more in funding, and far more easily. Most companies listed in the United States are not jointly traded in Israel, said R. Robert Goldman, an analyst specializing in Israeli stocks at Chesapeake Securities Research Corp., a Towson brokerage firm.

At least two U.S.-based mutual funds specialize in Israeli companies: New York-based First Israel Fund Inc., started in 1992, and Chicago-based Israel Growth Fund, started in January. In Baltimore, a new business biweekly "faxazine" -- called Israel marketFax -- covers Israeli securities traded on U.S. exchanges.

Why the interest in a country rocked by Middle East politics? Israel is the only country to have free trade agreements with both Europe and the United States, Mr. Goldman said. It has a strong high-technology industry and generous government subsidies for corporate research and development. And "Israel's work force may be the most highly skilled, lowest-wage country in the world," said Mr. Goldman.

In addition, "the Israeli economy has turned around 180 degrees in the last 10 years on the inflation front," said Mr. Goldman. "Inflation is not running away like it did 10 years ago, and that is a major reason for the growth in the market."

The Tel Aviv stock market began collapsing in early February. Some smaller stocks on both the Tel Aviv and U.S. exchanges have lost up to 60 percent of their value, said David B. Weiner, editor of Israel marketFax.

The market fell for a variety of reasons, he said, including a stock market scandal, anxiety over peace talks between Israel and its neighbors and the Palestine Liberation Organization, speculation in overpriced stocks, and slightly higher inflation combined with slower growth.

"We've been cautious since February after being optimistic for about three years. We've become cautiously optimistic," said Lior Bregman, a managing director at Oppenheimer & Co., a New York investment banking firm. "We are still sitting on the sidelines. We don't buy the market, but we are selecting some companies to buy" in the United States and in Tel Aviv.

The recent down market "carries over whether [stocks are traded] in Tel Aviv or in the United States," said Mr. Goldman.

Regardless of the slide, the local investment clubs are still buying, "with every spare dollar," Mr. Berman said. Since he and three other ZOA members sponsored the first club six years ago, the first two clubs have filled and are closed to new members. The ZOA recently began a third club.

Total investments for the three clubs have reached $400,000, said Mr. Berman, who is a partner at Rosen, Sapperstein, & Friedlander, a Baltimore accounting firm.

The three clubs are organized as end-load mutual funds and invest only in Israeli companies that trade on American securities exchanges.

The first club, the Baltimore District Club, with 55 members, owns shares primarily in Israeli companies, but also invests in U.S. companies that have made a "significant" investment in Israel. Its share value rose from $50 in March 1988 to a high of $159.77 in September 1993. At the end of this year's first quarter, each share was worth $140.66.

The Golda Meir Club, founded in 1992, buys only Israeli companies trading in the United States. It has 73 members. Its shares, which rose from $50 in July 1992 to a high of $70.57 in December 1993, has fallen to $58.97 in 1994's first quarter.

The clubs have kept the quarterly payments low to attract all levels of investors. Members pay an initial investment of $250, with quarterly payments of at least $150, or $600 a year. Members can invest an additional $1,200 a year.

"That gives us about $5,000 to $10,500, depending on the club, to invest a quarter. Most small investors can't lay out that cash. That is why it is better for small investors to be part of a group," says Mr. Berman. Members pay a penalty if they withdraw their funds within three years.

Mr. Berman has invested $6,000 in the three clubs. Those investments are now worth about $10,000. He spends about 200 hours a year on club business and will visit Israel on a trade mission this fall.

"Too many Jewish people look on Israel as a place to give charity money, to go and visit, [not] as an investment," said Mr. Berman. "We see it as a good investment, and up to the current period, we made a lot of money."

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