Israeli Stock Market Indices Set for Major Rebalancing

The Tel Aviv Stock Exchange is preparing for its semi-annual index rebalancing, set to take effect on September 17. This adjustment, managed by index provider FTSE, will see five Israeli stocks added to FTSE indices, prompting index-tracking funds to purchase approximately 42-50 million shekels worth of each. These additions include Veridis, Migdalor, Keystone, Rimon, and Scope. In anticipation, these stocks saw a significant average rise of 7.16% in the week following the announcement, outperforming the broader TA-125 index.

Analysts suggest this surge indicates potential market overreaction, with investors buying in advance of the expected demand from index funds. This could lead to a price drop on the day of the rebalancing as these early investors sell. The article highlights that early prediction of these changes offers a positive premium for investors, but late entrants risk losses due to this anticipated overreaction.

The rebalancing will also affect the TA-35 and TA-90 indices. Damari, with a market rank of 48, is at high risk of exiting the TA-35, alongside Shufersal (45) and Canon (40), unless their market positions improve significantly by the cutoff date of October 15. Doral is the most likely candidate to enter the TA-35, with Fataal and Enerjix also contenders. Changes in the TA-35 will trigger corresponding movements in the TA-90, with net selling expected due to the larger amount of money managed by the TA-90 index.

The TA-90 index will also see shifts, with liquidity being a key factor. Stocks like Tdahar are expected to enter, while Alpha Tau and Avisror are borderline, depending on their liquidity and market performance. Best Group is unlikely to enter due to low liquidity. The article also details potential changes for the SME60 and TA Growth indices, noting that new entrants to the TA-125 will initially have their weight capped at 0.25, gradually increasing over subsequent rebalancings. This phased introduction aims to spread the impact of index fund demand over time.