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The Tel Aviv Stock Exchange took the market fauna by surprise. As investors and traders returned from the Shavuot break, they were astonished to find trading turnovers leaping, thanks to a wave of buying by foreign investors.

Success at the institutional phase of large-scale public offerings whetted the appetite of many a publicly traded company, and not a few hastened to publish prospectuses to sell corporate bonds.

No, we aren't talking about last week. The above are quotes from a stock market report in Haaretz ten years ago, in May 1997.  Turns out the mood was pretty frothy back then too, as it is today.

But comparing the figures of the spring of 1997 with the spring of 2007 may surprise you, if you hadn't been around ten years ago.

When we reported in May 2007 about "frisky turnover" and browsing by foreign investors, we were referring to trading volumes of NIS 130 million a day. NIS 150 million, max. The average turnover in Africa Israel (TASE: AFIL)  today has been NIS 70 million, and the average turnover in shares on the TASE has been about NIS 2 billion a day, 15 times greater than a decade ago.

A month ago, on a Thursday when options on the TA-25 index expired, daily turnover climbed to NIS 5 billion. In May 1997, on the parallel Thursday, turnover was NIS 200 million.

Never before have Israel's financial markets been so lively, even when compared with the boom times of 1993, 2000 or the early 1980s.

Here are some more eye-popping numbers.

Israel Chemicals' (TASE: CHIM)  market cap recently crossed the $10 billion mark (about NIS  40 billion), yet none of the business papers in Israel so much as ran a brief on it.

Shy Talmon, today a Bank Hapoalim officer and back then, the accountant-general at the treasury, may remember the astonishment of government and investors alike when The Israel Corporation (TASE: ILD)  decided in March 1997 to buy 17% of ICL from the state, three days after the sudden demise of The Israel Corporation founder Shoul Eisenberg.

The state sold its ICL shares at a company value of NIS 4 billion, a tenth of the company's present market value.

Eisenberg had a knack for buying cheap and selling dear. He would have turned in his grave if he knew that his heirs sold the controlling interest in The Israel Corporation two years later, to the Ofer Bros, at a company value of $600 million. Today The Israel Corporation is worth ten times as much, mainly because of ICL's meteoric climb in value to about $5.3 billion.

Delek Group (TASE:  DLEKG) shares rose 30% in the last few months, lifting the company's value to $2.7 billion. Dov Tadmor today runs a small equity fund and must be rubbing his eyes at the company's sheer weight.

Why? Because less than ten years ago, an unknown builder from Netanya snatched Delek Group from under Tadmor's nose. Tadmor was then the CEO of Discount Investment Corporation (TASE: DISI) , which owned Delek Group. Tshuva's deal priced Delek Group at $400 million.

Minus the dividends in cash and kind that Tshuva has handed out since the takeover, the real cost of the Delek Group takeover was $250 million, less than a tenth of its present value.

Oh, while on Delek, ten months ago  Delek bought the controlling interest in The Israel Phoenix Assurance Company (TASE: PHOE) , in two deals, at an average company value of $630 million. Today Phoenix is worth $1.2 billion.

Shares of Partner Communications (LSE, TASE, Nasdaq: PTNR)  have risen 50% in the last few months, lifting the company's market value to $2.8 billion. Its main shareholders two years ago, Shaul Elovitch, the Dankner family, Nochi Dankner and the Itschak Shrem group, are probably ruing the day they sold their shares in Partner to Partner itself for NIS 32 per share. Last Thursday Partner stock rose to NIS 74, which was 130% above the price they got. Hutchison Whampoa of Hong Kong and the public are up a billion shekels thanks to that selloff.

A bunch of Wall Street sharks bought the controlling interest in Bank Hapoalim (TASE: POLI) together with the Arison and the Dankner families.  In the ten years they owned the shares, they never stopped griping about the lousy investment they'd made. The leader of the pack, Lew Ranieri, savagely attacked the Bachar reform and complained that the Israeli government had reneged from the principle of the free market and was, de facto, nationalizing the bank.

When Ranieri saw that the government wasn't cowed by his assault, he and the so-called "American shareholders" - Len Abramson, Charles Schusterman and Michael Steinhardt - dumped their shares in Bank Hapoalim. Later, so did the Dankners. They got NIS 12 to NIS 15 for their shares. Today Bank Hapoalim started at NIS 22.

These are poignant stories, and there are dozens more like them. They reflect the tremendous changes in Israel's capital markets over the last ten years, mainly in the last two years.

Israel's capital market today is deeper, broader, more advanced by an order of magnitude.

Globalization and the massive influx of foreign investors, the breakthrough of local entrepreneurs into the international marketplaces, the leap forward in management quality in the business sector, and structural reforms - first and foremost the Bachar reform - have changed the system beyond recognition. The process gained tremendous momentum in the last two years thanks to the international boom in the financial markets and unprecedented floods of liquidity.

Investors who sold off a year or two ago admit they never expected a boom like this. And the good news is that much of the change is irreversible: even short-sighted governments and war can't turn the wheels of progress backwards.

The bad news is that large parts of Israel did not share the prosperity. The standard of living in Israel did not boom with the financial markets. It has been stagnating for a decade.

The quality of management in the public sector did not improve with management in the private one.  It even retreated, in some aspects. Education and all too many aspects of society did not stride forward with share prices.

Some comfort themselves with the thought that the results of this anomaly, the growing detachment of the business sector and hi-tech coups, from government and the rest of society - won't impact for years to come.

Yet if you compare the excellent performance of Israel's economy with that of other places, mainly emerging markets, you find that Israel's anomaly is already exacting a heavy price.

Don't seek indications about Israel's economic future in the boom in the financial markets, or in turnovers on the stock market. Much more basic benchmarks are a lot less optimistic than the value of ICL, Partner, Delek or Bank Hapoalim.