Investors embrace Mideast peace pact Wall Street flocks to Israeli stocks

September 11, 1993|By Ian Johnson | Ian Johnson,New York Bureau

NEW YORK -- The signing ceremony to cement a peace agreement in the Middle East may still be two days off, but Wall Street reacted to it yesterday with euphoria.

Trading on the news that Israel and the Palestine Liberation Organization have agreed to recognize each other, investors flocked to stocks of Israeli companies and a fund that focuses on Israeli companies.

Managers of huge investment funds say they are giving Israel more serious consideration after being burned in the 1980s by the country's high inflation rate.

"The agreement takes away some of the political risk. There was always the concern about another war, but it doesn't look like that will happen any time soon," said Reiner Triltsch, a principal with Gulfstream Global Investors Ltd. of Dallas.

Mr. Triltsch said Israel has always had attractive aspects. Its work force is well trained and labor costs are lower than in the United States. Plus, special tariff agreements give products produced there easy access to the United States and Europe.

Crimping this potential, however, has been the country's economic policies, which had pumped up inflation, and its uncertain political situation. During the Persian Gulf war, for example, foreign investors fled the country.

"It's the fear of being blind-sided by political or military events. It's really this fear that has limited investment," said Jean-Marie Eveillard, president of the $1 billion Sogen International Fund.

The agreement with the PLO, however, limits the chances that a major crisis or war will erupt, Mr. Eveillard said, even though the accord is incomplete and may be just a first step toward stability in the region.

"We have to give Israel a second look," Mr. Eveillard said.

Others haven't bothered waiting.

The First Israel Fund Inc., a closed-end fund that invests in Israeli companies, has seen its shares rise 25 percent over the past two weeks as news of a rapprochement between the two enemies has slowly been leaked. The fund closed yesterday up 50 cents at $16.

Most of the companies that interest investors are small biotech and technology companies.

ECI Telecom Ltd. has risen throughout the year but rocketed 6.5 percent yesterday, rising $3 to close at $49 1/4 .

Share prices for three other prominent Israeli companies, Tadiroan Ltd., PEC Israel Economic Corp. and Teva Pharmaceutical Corp., also closed up sharply yesterday, and volume for all four companies was nearly twice their averages.

One reason for investors' interest is that with defense concerns likely to play a secondary role, Israeli technology companies should be able to turn their attention to making profits in the civilian sector, said Ron Rosenthal, director of international options at Oscar Gruss & Sons Inc., a New York underwriter that specializes in Israeli companies.

Magal Security Systems Corp., for example, has turned from defense contracting to making bomb-detection devices for airports, Mr. Rosenthal said. The company's stock increased 7 percent yesterday, closing up 75 cents to $11.75.

"We're seeing tremendous interest in Israeli companies. People are beginning to realize what the potential is over there," Mr. Rosenthal said.

Another lure is that with U.S. investors pouring money into mutual funds at a record pace, money managers are hard-pressed to find cheap investments.

Latin America, the Pacific Rim and even the former communist countries in Eastern Europe have received the once-over by Wall Street's professional bargain hunters.

This leaves Israel and its booming Tel Aviv stock market as the land of milk and profits, Mr. Eveillard said.

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