Updated from 10:32 a.m. EST

TEL AVIV, Israel -- The Nasdaq Stock Exchange launched Sunday the new Nasdaq Israel Index (symbol: ISRQ), composed of 72 firms, across all sectors, that are traded on the exchange and incorporated in Israel.

The backdating-inflicted communications company Comverse Technologies ( CMVT) is not included in the index, but other renowned Israeli tech stocks such as Teva ( TEVA), Check Point ( CHKP), M-Systems ( FLSH) and NICE Systems ( NICE) have prominent positions in the index, with weightings of 4% to 8% each.

The Nasdaq Israeli index is only the second country-related index to ever be launched by the Nasdaq. The Canadian Index was launched in 2000.

Assaf Homossany, managing director at the exchange, says the Nasdaq hopes to create interest in the strong Israeli economy as reflected through Israeli companies traded abroad.

"For a long period up until March this year, before the emerging-markets collapse, the Israeli Index outperformed other major indexes," Homossany says. "We believe that the new index will be a useful and indicating tool for investors who want to keep an eye on the Israeli opportunity."

Homossany declined to comment on whether there were any discussions with outside firms on the creation of ETFs that would track the index.

Dan Harvard, a technology analyst at Deutsche Bank in Israel, is skeptical regarding the chances of significant money tracking the index.

But he hopes the exposure created by the index will lead investors to take the next step and look into the Israeli market and the companies traded on the Tel Aviv Stock Exchange.

A Promising History
Backtesting shows stellar gains for the new Israeli Index.
Click here for larger image.
Source: Nasdaq and Factset Research

"Investors looking at Israeli companies traded abroad have all the reasons also to look at the local market, which has posted spectacular year-over-year growth," Harvard says. The Tel Aviv 25 index of the major companies by market cap has recently been trading at all-time highs, surging more than 100% in three years.

Harvard laments that some of Israel's biggest and most promising companies are traded abroad while the largest company currently traded on the Tel Aviv Stock Exchange is the U.S. company VeriFone ( PAY), which completed its acquisition of Israel-based Lipman Electronics Engineering earlier this month and is reportedly in merger discussions with Retalix ( RTLX).

Meanwhile, the Nasdaq marketing team has been especially occupied lately with trying to recruit and enlist Israeli IPOs on the Nasdaq, initiating investor conferences in both Israel and New York promoting the Nasdaq-Tel Aviv connection.

In this respect, it's interesting the launch of the Israeli index comes one a day before the Toronto Stock Exchange holds its first conference in Tel Aviv designed to attract Israeli start-ups with lower listing fees and a simpler regularity system.

Recent IPOs coming from Israel include Allot Communications ( ALLT), a provider of broadband service optimization solutions, which priced 6.5 million shares at $12 on Thursday. The stock was recently trading down 3.8% at $12.38.

As originally published, this story contained an error. Please see Corrections and Clarifications.

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