So far this year, the Tel Aviv 35 Index has risen by 16.3% and the Tel Aviv 125 Index has risen by 10.9%. Nevertheless, many investors have posted losses on their investments. The reason for that is that, according to Tel Aviv Stock Exchange figures, 70 of the 125 stocks in the Tel Aviv 125 Index show negative returns for the year to date. The declines are mainly in the smaller stocks, those that are also in the Tel Aviv 90 Index, which has fallen by 6.5% so far this year, and by 11% in the past month.
The phenomenon is not unique to Israel. It is currently manifest in the US as well. What explains the dissonance, and does it represent an opportunity?
Analyst and portfolio manager Lior Vider, founder of the Profit Multiplier consultancy, wrote this week following a day on which the Tel Aviv 35 Index rose, that it seemed like a positive and stable day. "Beneath the surface, however, the picture is quite different. In most trading sessions, the strength of the leading indices rests on a handful of heavyweight stocks, headed by semiconductor stocks Tower and Camtek, which have risen sharply lately, and they obscure the real trend. In actual fact, most of the market suffers from deep weakness," Vider wrote.
Furthermore, Vider found that the number of stocks that have fallen on the Tel Aviv Stock Exchange during the year to date (some 340) is almost double the number that have risen (190). 55 stocks, about 10% of all the stocks on the exchange, are at a 52-week low and on average are 45% below their 52-week highs. Only four stocks are at an annual peak. Shares in Aryt Industries, Neto Malinda Trading, Israel Shipyards, Alony Hetz, Israel Canada, and Electra Consumer Products, are at or close to their 52-week lows. Vider writes that this is clear evidence of the fragility of the market and that the gap illustrates "the extent to which the rises are narrow and selective, and how few stocks actually keep the indices high."
Tel Aviv Stock Exchange EVP Trading, indexes and Derivatives Yaniv Pagot thinks that the current situation is a natural one. "That’s the beauty of a market in which there’s selectivity," he says. "There are companies for which the current macro environment is good, and those for which it is less good, and I would want this to be reflected in the performance of their stocks. If it wasn’t, we might be talking about a bubble or some other problem. The natural situation is one in which we see variation in performance, and that is a function of the sector in which a company operates and its individual story."
"The market differentiates"
Pagot says that current macro conditions are not favorable for real estate and construction companies, but that within the sector there is variation. For example, he singles out Mega Or, controlled by Zahi Nahmias, which diversified into data centers and saw its share price rise, while the income-producing real estate sector as a whole is not currently perceived as attractive. "The market knows how to differentiate. The market is working, it’s not broken," Pagot stresses. "The higher the level of liquidity - and it’s at a peak level on the stock exchange these days - the easier it is for this to manifest itself."
Anatoly Zeiman, head of Foreign Securities at the Tel Aviv Stock Exchange, wrote on the subject last week and said that it was a matter of an illusion of a broad-based boom. "The rises in the indices are driven by a small handful of big companies, while most companies on the market are traded on a declining trend or are marking time." Five companies on the Tel Aviv 35 Index list were responsible for almost 10% of the overall 16.3% rise in the index between the beginning of the year and the end of last week: Tower Semiconductor, Harel, Phoenix Finance, and Elbit Systems.
Zeiman stresses the fact that the Tel Aviv 90 Index has fallen this year, and explains that in the Tel Aviv 35 Index are banks, insurance companies, and large technology companies, sectors that benefit from, or at least are not sensitive to, rises in local interest rates, whereas in the Tel Aviv 90 list are sectors that are sensitive to interest rates, such as real estate and renewable energy.
Unlike Pagot, Vider sees the phenomenon as a clear weakness signal from the market. "In a healthy market, a wave of rises rests on market breadth, widespread participation of a variety of sectors and of companies at all market cap levels," he says. "When the main index displays stability or a rise based on only a handful of heavyweight stocks while most of the market is trending downwards, a situation is created of a hidden bear market. The indices simply present a false picture that is not evidence of general sentiment, and it’s enough for the leading stocks to take time out for the weakness to surface in the indices themselves."
An illusion of broad diversification?
Vider sees the phenomenon in Tel Aviv as a reflection of what is happening on Wall Street, where the ten largest stocks on the S&P 500 Index, headed by the technology and AI giants, have a 35% weighting in the index. "The gap that has opened up between the weighted S&P 500 and the S&P 500 Equal Weight Index brings home how narrow the rally in the US is," he says. "But across the ocean it’s a matter of huge and very profitable global companies, and in Israel the market is less liquid, and when the money flow just to a small number of big players, the remaining stocks are left without liquidity and come under heavy selling pressure."
In Tel Aviv, Pagot points out, while the Tel Aviv 125 Index has risen by 10.9% in the year to date, as mentioned, the Tel Aviv 125 Equal Weight Index has fallen by 1.8%. "You have to understand that the passive money goes mainly to the big companies that have high weightings in the index. More passive money chiefly fuels the big companies and is not so much invested in the small ones, and that feeds on itself," Pagot says.
He says that in the US there are two main macro-economic factors. One is AI, and the question who are the winners and the losers, with the technology giants leading. The other is the rise in bond yields. "When the yield on ten-year US bonds is over 5.3%, there are many sectors that don’t look good. Why buy them when you can obtain the return risk-free?"
What is the significance of a market like this for investment in indices?
Vider: "These numbers completely blow apart the basic assumption of those who choose passive investment in local indices. An investor who buys the Tel Aviv 15 Index is certain that he obtains wide diversification across 125 companies that represent the local economy. The reality is that the ten biggest stocks currently comprise almost 47% of the index, with a weight almost the same as the 115 other stocks put together. In the Tel Aviv 35 Index the distortion is even worse, with the ten biggest stocks representing more than 60% of the index as a whole. In practice, the investor is not buying ‘the Israeli market’ but is taking on concentrated exposure to a handful of banks, semiconductor stocks, and energy giants, with almost no impact from the rest of the growth and industrial stocks."
Pagot: "As someone who manages active money, I can tell you that it’s hard to beat a good benchmark index like the Tel Aviv 125. The index is not driven by emotion, it doesn’t sell a security when it rises strongly, and it’s diversified, and so it enables people to avoid mistakes. The index reflects the general make-up of the market, and it suits most people, who don’t know how to choose appropriate stocks for themselves. Today, 70 of the 125 companies in the index are red, and the index is positive for the year to date despite that. What does that mean? That the ‘stupid’ investor who bought the index is actually a smart investor."
Published by Globes, Israel business news - en.globes.co.il - on October 8, 2026.
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