Israeli Stocks Shine Through Political Fog

Considering its diminutive size, Israel garners an inordinate share of global headlines. That's been even more evident in recent weeks, as the nuclear threat from Iran, a Palestinian election and the major illness of Prime Minister Ariel Sharon have kept the country on the front page.

Mutual fund manager Gadi Beer, however, wonders why the press doesn't often feature Israel in the business section as well.

Beer, portfolio manager for the $13 million (AMDEX Quote)AMIDEX35 Israel index fund, says investors should look past the geopolitical news and focus more intently on the growth of Israel's economy and its burgeoning stock market. Beer's fund tracks the 35 largest stocks in Israel, with Teva Pharmaceuticals(TEVA Quote) as its biggest holding, comprising 18.5% of the fund's assets. Other large holdings in the fund include well-known tech companies Amdocs(DOX Quote), Check Point Software(CHKP Quote) and Comverse Technology(CMVT Quote). The AMIDEX35 Israel fund is up 2.25% year to date after rising 14.2% in 2005 and 14.9% in 2004, according to Morningstar.

Beer spoke with TheStreet.com about Israeli stocks and the current events that may or may not affect them.

How do the current escalated tensions between Israel and Iran over Iran's nuclear ambitions affect Israeli stocks?

I don't think that the escalation of tensions is necessarily between Iran and Israel. It's true that you can find plenty of name-calling in the news from both sides, but Iran is in the spotlight of the whole world, the U.N. nuclear inspectors, and more importantly, the United States. Israel is not the one to lead the front against them, although, as we learned more than 20 years ago in Iraq, when the going gets tough, Israel gets the job done. Can you imagine what the Gulf War would have looked like if Israel hadn't destroyed Saddam's nuclear plant back then?

How does Ariel Sharon's serious illness affect the Israeli economy and, in turn, Israeli stocks?

A recent Goldman Sachs report expects a 4.2% growth in 2006 despite Sharon's illness. Based on ongoing updates, Mr. Sharon's condition is already well priced into the market. On the day of the announcement, the market dropped 7% and corrected back up, ending with only a 4% drop. It is obvious at this point that he will not be able to return to work, but we hope that the guidelines to peace that he established will continue by the Kadima party.

To view Gregg Greenberg's video take of this report, click here.