bluestar israel equity review &...

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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, by two TASE-listed ETNs, and by an Israeli-registered mutual fund. Israel has one of the world’s most resilienteconomies, its technology sector is a global innovation leader, and its companies have a global footprint. The Update provides insight intomacro forces, the geopolitical environment in which Israel’s economy operates, and the individual company investment opportunities thathave contributed to Israeli Global Equities’ impressive long-term performance.

BlueStar Israel Equity Review & OutlookFebruary/March 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

“Searching for a bottom”March 7, 2016

Israeli Global Equities, as measured by BIGI®, stabilized from their seemingly inexorable slide in February, declining by “only” 0.40% during the month, inline with U.S. equities, and considerably better most global and emerging markets, which declined by 3.33% and 0.82%, respectively. It seems that Israeli Global Equities may have reached a bottom, after declining by more than 21% from their August 2015 peak.

Unsurprisingly, market sectors most correlated with global economic and market trends were the worst-performing sectors in February. These included energy, materials and health care, the latter of which tends to move on developments in the U.S.pharmaceutical industry. Elsewhere, significant stock movements were driven by positive drug test results and better thanexpected corporate earnings and outlooks for the year. One worrisome trend for companies in a wide range of industries has been reporting of strong Q4-15 results accompanied by lower guidance for 2016 revenue and earnings. Again, this is trend evident in most major global stock markets.

(Commentary continued on following page.)

BlueStar Israel Global Index ® Relative Performance Since 2010

Benchmark Period Return

BIGI® -0.40%

MSCI Israel -0.65%

TA-100 -0.71%

S&P 500 -0.41%

MSCI EAFE -3.33%

MSCI EM -0.82%

Global Equity Benchmark Comparison:February 2016

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

Benchmark Period Return

BIGITech® 3.47%

Nasdaq-100 -1.82%

S&P Global Tech -1.18%

TA- BlueTech 4.61%

EM Internet & E-commerce -3.76%

Global Technology Stock Index Comparison:February 2016

60

80

100

120

140

160

180

200

TA-100

S&P 500

BIGI

EIS

75

95

115

135

155

175

195

215

235

255

275

BIGITech

NQ-100

GlobalTech(IXN)

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BlueStar Israel Equity Review & OutlookFebruary/March 2016



Macroeconomic data released in February, including preliminary Q4-15 GDP growth of 3.3% and an uptick in exports (+5.5%yoy), should be supportive of Israeli Global Equities. Inflation continues to be negative and medium-term (3 – 5 years)expectations are still below the Bank of Israel’s (BoI) 1.5% - 3.0% target range. In keeping interest rates at 0.10% for March,the BoI noted that risks are rising in the global economy, particularly in the form of a slowdown in trade, and that currentmarket expectations imply a low probability of additional U.S. rate increases this year.

BlueStar Bottom Line: Given the supportive domestic economic outlook and continued improvement in exports, we believethe worst may be over for Israeli Global Equities. We expect corporate earnings to trough in the first half of the year whichwould set the stage for stronger equity markets in H2-16. As always, though, we remain cognizant of global headwinds thatcould alter this environment, including worse than expected U.S. economic growth, turmoil in the EU related to a possible U.K.exit , and further downgrades to China growth prospects.

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

Top Israeli Equity Gainers and Losers: February 2016

Top-performing Israeli Stocks Worst-performing Israeli Stocks

Pluristem Therapeutic 45.45% Alon Usa Energy -20.52%

Plus500 34.23% Ceva -15.29%

Magic Software 24.47% Imperva -14.91%

Formula Systems 24.09% Israel Corp Limited -14.04%

Osem Investments 23.98% Cyberark Software -14.02%

Mobileye 19.65% Radware -13.85%

Attunity 17.47% Solaredge Technologies -13.44%

Nova Measuring 17.35% Ceragon Networks -12.70%

Sapiens International 17.20% Perrigo Co -12.58%

Opko Health 15.67% Foamix Pharmaceuticals -11.57%

GICS Sector Return

Consumer Staples 8.52%

Utilities 7.80%

Info. Technology 3.75%

Telecom. Services 3.50%

Financials 3.09%

Consumer Disc. 1.59%

Industrials -1.49%

Materials -2.82%

Energy -4.61%

Health Care -6.65%

Israeli Equity Sector Performance: February 2016

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Market Trends &Technical Analysis: BIGI®



The upward sloping parallel dark green trend lines on the longer-term chart above served as a critical support area in February. Looking ahead, it is vital thatFebruary’s low is not breached if Israeli Global Equities are to continue their rebound. If those lows are broken, BIGI® could swiftly drop another 6% to the220-225 level before ultimately reaching the 195-205 area. We view such a breach as unlikely in the very short-term and would use any test of that area as asolid short-term buying opportunity. The seven-year upward trend lines that were decisively broken in early January, combined with a clear head andshoulders top are now the key underlying technical trends for the index. It is likely that that the index will test the area between the neckline of the head andshoulders pattern and the underside of the long-term upward trend lines that were broken in January. For the key underlying trend to turn from bearish tobullish we would need to see at least one set of convincing higher lows and higher highs combined with sustained improvement in the moving averages shownon the following page.

StrongSupport Area

StrongResistance Area

StrongSupport Area


Resistance Area

Resistance Area

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Market Trends &Technical Analysis: BIGI®

Last month: “The 200-day moving average is now clearly downward sloping which is generally abearish signal. In the very short-term however, as the distance between the 50-day and 200-daymoving average increases, the index will enter into oversold territory indicating that a relief rallyto test the 50-day moving average is becoming more likely.”

This month: If the index can break through the 50-day moving average, the next move would beto test the 200-day moving average and the neckline bottom. This chart remains bearish as boththe 50- and 200-day averages are sloped downward but we are still likely to see a period ofconsolidation/relief as the 200-day average catches up to the 50-day average before anothermove lower.

Breaking through the 30-day average decisively was a key first step towardrecovery. However, the 100-day average has held as resistance since mid-2015. This chart also suggests we have some more time forconsolidation/relief rallies before the index runs into significant resistanceat the 100-day moving average. This chart will become bullish againif/when the index holds above the 100-day average and the 30-daycrosses above the 100-day.

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Market Trends &Technical Analysis: BIGITech®



Like BIGI®, the important thing to remember with TA-BIGITech® is that the upward sloping parallel red trend lines were decisivelybroken in January along with the horizontal parallel red former support lines. Those lines are likely to be tested, suggestingadditional near-term upside. However, the chart remains bearish and we expect those resistance lines to hold. In order to becomemore bullish, the index must test the bright green upward trend lines and establish a convincing set of higher lows and higherhighs.

Support Area


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

We believe that given trends in domestic and global interest rates and the BoI’s stated desire to boost exporters’competitiveness, the shekel will have a tendency to weaken vs the USD throughout at least the first half of 2016, especiallyif the U.S. Federal Reserve continues with its stated plan to gradually raise interest rates over the course of 2016. Wetherefore think the shekel will remain relatively stable around current levels with a weakening bias.

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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.

• Israeli cyber security analytics company Skybox Security received a $96 million investment from U.S. private equity firm Providence Strategic Growth. Skybox develops software solutions that extract insight from cybersecurity data to give visibility of an enterprise's attack surface, and reveal the ways in which its IT systems are vulnerable to threats.

• Chinese automaker Qoros will open an advanced research & development center in Israel. The company plans to utilize Israeli know-how to develop smart cars and electric vehicles. Qoros is owned by Kenon Holdings (TASE: KEN), which spun off from the Israel Corporation (TASE: ILCO)

• Merck (NYSE: MRK) has extended its research partnership with the Weizmann Institute. The German pharmaceutical giant will provide up to EUR 1 million per year to the institute’s immunology and imuno-oncology research programs for up to three years.

• Russia's Titanium Investments has launched a $50 million fund for investing in Israeli startups. Close to half the sum has already been invested. Titanium had previously focused solely on investments in Russia.

• Israel Chemicals (TASE, NYSE: ICL) signed a long-term flame retardant supply deal with U.S. specialty chemical manufacturer Albermare. (NYSE: ALB)

• U.S. software giant Oracle (NYSE: ORCL) agreed to buy Israeli cloud software company Ravello Systems for a reported $500 million. Ravello will become part of Oracle’s cloud solutions unit.

• Israeli company Elencon Systems has signed a memorandum of understanding with French engineering company Alstom SA, a unit of General Electric (NYSE: GE), with a view to a long-term collaboration agreement. Elencon, of the GefenInvestments group, has developed technology for managing energy consumption that can reduce the cost of cooling large buildings by 30%. So far, there have been several successful installations in Israel: at the Hasharon Hospital, the Holon Institute of Technology, and the Crowne Plaza Hotel in the Azrieli towers in Tel Aviv.

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