BlueStar Israel Equity Review & Outlook · weakening of the Israeli shekel against the U.S. dollar....

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The BlueStar Indexes® Monthly Update covers Israeli equities traded worldwide. The BlueStar Israel Global Index® (BIGI® or BLS:IND onBloomberg) is used as the benchmark for our review as it represents the complete opportunity set of Israeli equities. BIGI® is tracked by theNYSE-listed ISRA Israel ETF and by two TASE-listed ETNs. Israel has one of the world’s most resilient economies, its technology sector is aglobal innovation leader, and its companies have a global footprint. The Update provides insight into macro forces, the geopoliticalenvironment in which Israel’s economy operates, and the individual company investment opportunities that have contributed to Israeli GlobalEquities’ impressive long-term performance.

BlueStar Israel Equity Review & OutlookDecember 2015/January 2016

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The opinions expressed in this report are those of BlueStar Global Investors, LLC and should not be interpreted as a recommendation to buy or sell any security. Readers should consult with a financial professional before investing.

© 2016 BlueStar Global Investors, LLC

“ Tough Finish to an OK Year”January 6, 2016

Israeli Global Equities, as measured by BIGI®, continued to slide in December, falling by 2.43%. The index underperformed relative to U.S. markets, but handily outperformed both European and Emerging Markets.

For the second month in a row, only two of the ten sectors tracked by BIGI™ rose during the month. Predictably, given the global commodity rout, energy and materials were the two worst performing sectors in December. Given the narrow breadth of these sectors within the index, this translates into sharp declines in natural gas producer Delek Group and fertilizer maker Israel Chemicals.

Despite the weak end to 2015, BIGI®’s full year return of -0.64% stacks up well compared to global markets (as measured by MSCI’s ACWI and Emerging Markets indexes, which returned -1.84% and -14.60%, respectively.)

(Commentary continued on following page.)

BlueStar Israel Global Index ® Relative Performance Since 2010

Benchmark Period Return

BIGI® -2.43%

MSCI Israel -2.73%

TA-100 -2.12%

S&P 500 -1.75%

MSCI EAFE -3.18%

MSCI EM -5.30%

Global Equity Benchmark Comparison:December 2015

TASE-BlueStar Israel Global Technology Index® Relative Performance Since 2010

Benchmark Period Return

BIGITech® -3.89%

Nasdaq-100 -1.53%

S&P Global Tech -3.16%

TA- BlueTech -4.62%

EM Internet & E-commerce -1.57%

Global Technology Stock Index Comparison:December 2015

60.00

80.00

100.00

120.00

140.00

160.00

180.00

200.00

TA-100

S&P 500

BIGI

EIS

75

95

115

135

155

175

195

215

235

255

275

01/04/10 01/04/11 01/04/12 01/04/13 01/04/14 01/04/15 01/04/16

BIGITech

NQ-100

GlobalTech(IXN)

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BlueStar Israel Equity Review & OutlookDecember 2015/January 2016



Although the Bank of Israel (BoI) once again left interest rates unchanged at 0.10% for January, 2016, the central bank didprovide some much needed clarity and guidance for the near- and mid-term path of interest rates. In its staff forecastpublished simultaneously with the interest rate decision, the BoI said it expects rates to remain at current levels until Q3-2016and to be 0.25% by the end of the year. It clearly stated its intention for rate increases to lag behind those in the U.S. If theU.S. Fed sticks to its stated plan of reaching 1.25% by the end of 2016, this interest rate differential should result in a materialweakening of the Israeli shekel against the U.S. dollar.

Other key elements in the forecast paint a positive picture for Israel’s economy in 2016, including 2.6% GDP growth and a slowrise in inflation to 0.8% by the end of the year, with the latter returning to within the BoI’s 1%- 3% target range by early 2017.Although forecast GDP growth is lower than the previous forecast of 3.3%, it is quite respectable in the context of the mutedoutlook for the global economy this year.

BlueStar Bottom Line: Israeli equities would appear to be well-positioned for a decent 2016 given this strong GDP prospectsand the likelihood of a weaker shekel which should boost exports. However, as with last year, much will depend on exogenousfactors, most crucially economic growth in the country’s key export markets of the U.S., Europe, and of course China.Uncertainty on this front, combined with our technical analysis and global stock market volatility, makes us cautious to slightlybearish on Israeli Global Equities for at least the first quarter of 2016.

Source: BlueStar Global Investors LLC; Currency-Adjusted returns in dollar terms

Top Israeli Equity Gainers and Losers: December 2015

Top-Performing Israeli Stocks Worst-Performing Israeli Stocks

Perion Network Ltd 64.25% Africa-Israel Inv -32.41%

SolarEdge Technologies 43.50% Africa Israel Properties -24.52%

Evogene Ltd. 19.76% Israel Chemical Corp -19.25%

Sarine Technologies 17.79% Attunity -19.17%

SuperCom Ltd. 13.48% Pluristem Therapeutics -18.71%

Blue Square Real Estate 13.43% Israel Corp -18.34%

SodaStream 12.41% Compugen Ltd -15.92%

Big Shopping Centers 11.27% Alon Usa Energy -15.63%

888 Holdings Plc 10.82% Neuroderm Ltd -15.26%

Allot Communications 10.23% Clal Insurance Enterprises -15.23%

GICSContribution to

BIGI® ReturnSector Total

Return

Industrials 0.10% 2.62%

Consumer Staples 0.06% 3.95%

Utilities -0.02% -2.07%

Telecom Services -0.02% -0.26%

Energy -0.27% -7.55%

Materials -0.32% -9.40%

Health Care -0.32% -1.03%

Financials -0.61% -3.73%

Info. Technology -1.71% -5.17%

Consumer Disc. -3.12% -3.12%

Israeli Equity Sector Contributionto BIGI® Performance: December 2015

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Market Trends &Technical Analysis: BIGI®



The previous bullishness of the BIGI® chart was compromised by poor price action on the final trading day of 2015 and the first trading days of 2016. Asillustrated on the longer-term chart, above, the orange trend lines connecting the 2009 lows, 2012 lows and 2015 lows have now been breached, though notdecisively broken. A bearish head and shoulders pattern is also present on both the longer- and shorter-term charts. The next major move would be down onlyif the long-term trend lines and the neckline support of the head and shoulders pattern are decisively broken. If these support levels are broken, the next areaof strong support is approximately 6% lower from the current index level, to between 240 and 250, which is represented by the double parallel light green linesin the chart above. On the flipside, the technical damage done to BIGI® over the last few months has established several layers of resistance, all the way up tothe all-time highs which are not likely to be overcome without strong economic and corporate earnings data. Given the current economic environment anduncertainty around the impact of a rising rate environment in the U.S., this is highly unlikely to occur in the very short-term. The strongest resistance areas arelikely to be 275-280, 290-298 and 305-315. The bottom line is that short-term traders or those investors with a high risk tolerance may find many opportunitiesfrom both the short and long side over the next few months but the charts remain precarious which suggests that the risk-averse should avoid initiating newlong positions.

StrongSupport Area

StrongResistance Area

StrongSupport Area


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Market Trends &Technical Analysis: BIGI®

The longer that the 50-day moving average remains below the 200-day movingaverage, the greater the downward slope of the 200-day moving average becomes. Aclear downward slope of the 200-day moving average is quite bearish. The indexappears ready for another downside move.

These moving averages also suggest the next movein BIGI® will be down. The chart will remainbearish until the 30-day moving average crossesabove the 100-day moving average.

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Market Trends &Technical Analysis: BIGITech®



Israeli Global Technology stocks, as defined by the TASE-BlueStar Israel Global Technology Index™, display a similar technicalpattern as BIGI®. A longer-term trend line was broken in late December/early January but key horizontal support lines are stillholding. If those support lines are broken, the index is likely to reach its next support level near 160. A break of that supportwould indicate further downside. There is now major resistance between 190 and 200 as well as between 208 and 230.

StrongSupport Area


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Market Trends & Technical Analysis: Israeli Shekel vs U.S. Dollar

We believe the BoI is comfortable with the USD/Shekel rate at or slightly below the $0.25 level given its stated desire toencourage exports in order to support growth. Our technical analysis suggests a near-term range of $0.24 - $0.26.However, we believe that given the prospects for a widening interest rate differential between the U.S. and Israel, theshekel is likely to weaken over the course of 2016.

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Israel: the Go-To Destination for Global Technology Companies



In this monthly feature we highlight the attractiveness of the Israeli technology sector by noting significant recent capitalmarkets and M&A activity which demonstrates that Israel is a key destination for global companies seeking to acquire cutting-edge technologies and that the strength of the sector is increasingly encouraging Israeli companies to make acquisitions abroad.

• FLIR Systems Inc. (Nasdaq: FLIR) acquired video surveillance developer DVTEL Inc. for $92 million in cash. DVTEL develops and distributes integrated video management system software, advanced video analytics software, visible and thermal security cameras, and related servers and encoders. DVTEL is based in New Jersey but its 60-person development center is in Rosh Ha'ayin, Israel.

• Israel-based Rioglass Solar, which produces HCE receivers and mirrors used for Solar Thermal Energy and Concentrated Photovoltaic technologies, has signed an agreement with Germany’s Schott Solar CSP GmbH for the acquisition of its receiver business, including assets in Spain and Germany. Schott Solar is Rioglass Solar's main competitor, and has been the main player in the thermo-solar market up to now.

• Agriculture biotech company Evogene (Nasdaq: EVGN) will cooperate with global chemical giant BASF in an attempt to discover and develop new herbicides. Under the three-year cooperation agreement, Evogene will use its technology to identify new chemicals potentially useful as herbicides, and BASF will use Evogene's plant platform to screen the candidate chemicals in order to experimentally validate their biological effects on weeds. Chemicals that successfully pass the screening will continue in BASF's development process.

• Israeli based global specialty foundry Tower Semiconductor Ltd. (Nasdaq: TSEM; TASE: TSEM) signed a definitive agreement with Semiconductor Laboratory, an Asian government agency. Under the agreement, Tower will leverage its manufacturing expertise and assets to manage the facility for the next three years. Tower will also provide support to help establish wafer reclaim capabilities and will provide training and procedures on the establishment of chemical lab capabilities. The deal is worth an estimated $35 million to Tower.

• Elbit Systems Ltd. (Nasdaq: ESLT; TASE ESLT) was awarded a contract from an Asia-Pacific country to supply a comprehensive airborne solution for use in intelligence, surveillance, target acquisition and reconnaissance (ISTAR) missions. The contract, worth $50 million, will be performed over a three-year period by Elbit Systems' ISTAR Division, which will be the prime contractor for this program. Elbit is also considered a final contender to purchase government-owned Israel Military Industries, which would produce major synergies.

• Israeli technology company Ability (Nasdaq: ABIL) went public via a reverse merger with Nasdaq blank check company Cambridge Capital Acquisition Corporation. The merger was completed at a company valuation of $250 million for Ability.

• Israel Aircraft Industries signed an agreement with the Shantou Municipal Government of China, the Guangdong Airport Authority and other Chinese partners to help transform the region into a center of development for China’s aviation industry. While China has excelled in manufacturing in general, to the extent that it has long been called “the world’s factory,” the Chinese have had less success in building a civil aviation industry — the crown jewel of manufacturing, worth hundreds of billions of dollars annually.

BlueStar Israel Equity Review & Outlook · weakening of the Israeli shekel against the U.S. dollar....

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