Tel Aviv markets plummet across the board as TA-25 plunges 6.3%

Sunday was a day everyone will want to forget, from the small investor through the big tycoon. The Tel Aviv Stock Exchange plummeted across the board, in all categories and sectors: Stocks and bonds, real estate and high-tech all fell. The Real Estate-15 dropped 11%, while the Tel Bond-40 index of corporate bonds tumbled an unprecedented 7.5%.

The blue chip TA-25 index lost 6.3% Sunday and broke through the 800-point barrier - on its way down - to end the day at 793 points. This is after the TA-25 lost 4.5% last Thursday. The TA-100 index lost 7% to close at 707 points. The TelTech-15 fell11.5%. Turnover was NIS 1.8 billion.

The major real estate shares have now lost more than two-thirds of their value since the start of the year. The TASE has now returned to its September 2006 levels and wiped out all of its gains in those two years.

As to bonds, the Tel Bond-20 index fell 4.9%, and is now down 14% in a month - its lowest level since it was inaugurated in February 2007.

Feeding the selling frenzy yesterday were sales of about NIS 250 million in ETFs, and another NIS 250-300 million was withdrawn from mutual funds.

"The market does not trust anyone," said a mutual fund manager. "If an investment bank such as Lehman Brothers can collapse, then who are these local tycoons? Even positive announcements have not succeeded in stabilizing the market. It doesn't matter what happens, the market will continue to fall. [We don't] know where it will stop; therefore in such a situation it is better not to buy more," he added.

Tycoons hurt badly

Not only Sunday, but throughout the past few weeks, Israel's major "tycoons" have been taking a beating in the markets. Africa Israel's Lev Leviev saw his shares plunge another 15%, while Nochi Dankner suffered only a 5% fall in his IDB Development shares, and Eliezer Fishman witnessed a further 16% drop in his Jerusalem Economic Corporation. Even Bank Hapoalim's controlling shareholder, Shari Arison, whose bank's stability is not in doubt - at least not for now - saw the bank's shares plummet an unprecedented 9% in one day, as the Banks-5 index fell 7.7%.

The Ofers' Israel Corporation continued its dive as its subsidiary Israel Chemicals collapsed - the latter company lost another 9% on fears that a global recession would lead to lower commodity prices, which would then cause a drop in prices for its fertilizer and chemical products. Only a few months ago Israel Chemicals was considered the queen of the TASE, as the share rose 60% from January through mid-June. However, then things started to change, and the share is already down 10% from the beginning of the year. This came despite Israel Chemicals reporting the highest profit ever recorded by an Israeli company, for the second quarter, but the company's story is a microcosm of the entire stock market.

'A leadership crisis'

Investors are not only showing a lack of faith in the stocks of companies owned by the large tycoons - they are also displaying a clear disbelief that many big, and highly leveraged, companies will ever be able to pay back their debts. It seems investors are now valuing these debts at a level reflecting their belief that they will go bust.

For example, one of Africa Israel's bond series is now trading at a 31% yield, which clearly expresses the market's view that Leviev will never be able to pay off all his debts. This is the same Leviev who was ranked the world's 210th richest person in 2007. However, Africa Israel is heavily invested in big real estate projects all over the globe, and in particular in places such as Russia, North America and Western Europe, all of which are expected to be seriously hurt by the present financial crisis.

"The crisis in the markets is a leadership crisis," said Shlomo Maoz, the chief economist of the Excellence investment house. "While in all other countries the governments are devising concrete plans to deal with the crisis in the markets, in Israel there is silence. Tzipi Livni is fighting with Ehud Barak over posts, and the prime minister is a lame duck. People feel there is no leadership capable of meeting the crisis' challenges," said Maoz.

Some in Tel Aviv are pushing for a bailout plan - just like in America. Many fund and money managers are worried that when the public sees their results for September, the flood of redemptions and sales will increase losses. Therefore, say these money managers, it would be cheaper for the treasury to put up money now to buy up bonds, not stocks.

However, some think that the markets are behaving irrationally, and that the Israeli economy is strong - and now is an opportunity to buy.

One mutual fund manager said the big fear is that an Israeli bank will fail, something that could be caused by rumors only and not necessarily by concrete financial issues.

Banks playing it safe with their cash

To guarantee such stability, Israeli banks increased their dollar deposits with the Bank of Israel by $1.1 billion in September. The central bank is now paying the commercial banks only 2% annual interest on these deposits, much less than its past rates, but it provides the banks with safety and stability during these rough times.

It seems mutual funds and other money managers pulled out of foreign investments in the past month and returned the cash to Israel, but did not want to convert the funds into shekels at the present low dollar rate. In the past, the Bank of Israel paid commercial banks the Libor rate, but now they are using the lower Federal Reserve funds rate of 2%.

Nathan Sheva, Moti Bassok, Tal Levy and Sarit Menahem contributed to this report.