Tel Aviv Stock Exchange's Worst Day Since 2011 Not Signaling Recession, Analysts Say

In any case, Israel is ready for a crisis, with a relatively low budget deficit and huge foreign reserves

FILE PHOTO: A stock market ticker in the  Tel Aviv Stock Exchange, Thursday, August 4, 2016.
Bloomberg

The panic that seemed to grip the Tel Aviv Stock Exchange on Sunday doesn’t portend a downturn for the Israeli or world economies, analysts said on Sunday.

“No doubt that we just had an unusual trading day,” said Danny Yardeni, vice president for investments at Altshuler Shaham. “But the macroeconomic fundamentals aren’t shaking like they did in 2008. We could see the market even lower than it is today in another months. There are a lot of problem, but from where we are now to a recession is quite a distance.”

He spoke as the TASE’s benchmark TA-35 index fell its sharpest since 2011, although much of the drop was due to a double-digit plunge for Perrigo, a non-Israeli company traded on the TASE. Dual-listed U.S.-Israel shares accounted for much of the rest of the losses.

The Wall Street sell-off was prompted by a host of factors, including concerns about interest rate hikes, the partial shutdown of the U.S. government, the U.S.-China trade war and growing fears on an economic slowdown in both countries.

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Alex Zabezhinsky, chief economist at the Israeli investment house Meitav Dash, agreed with Yardeni. “We’re not in a recession. In fact recently there have been some positive developments that could change the direction for the better and stop the sell-off,” he said.

The situation today, he said, reminded him of events in 2015-16 when the Chinese economy was slowing, the strengthening dollar was hurting emerging markets and trade war worries all undermined investor confidence.

Today, Zabezhinsky said, China is taking the same kind of measures it took in 2016 to stimulate economic growth. He expressed optimism about the U.S. and China settling their trade dispute by negotiation.

“Personally, I don’t think the Fed will raise interest rates next year, just as in 2016 when it talked about four hikes but in the end didn’t raise them at all,” he said.

Guy Rosen, an investment manager at Migdal Capital Markets, said the reaction of Tel Aviv shares to Wall Street was exacerbated by low liquidity in the market. “But I don’t believe that were facing a dramatic crisis. The situation isn’t like 2008. U.S. companies have boosted profits 20% and they expect to grow next year, too. Forecasts for a U.S. recession are only for 2021,” Rosen said.

As to the Israeli economy, Yardeni pointed to its underlying strengths, among them foreign reserves of more than $115 billion, equal to more than 31% of gross domestic product, and a relatively low budget deficit equal to 3.5% of GDP.

“With all the problems Israel has and complaints about the rising deficit, the deficit is still very low compared to other countries in the world,” he said. “In addition, the Bank of Israel has huge dollar reserves. ... Israel won’t enter into any storm with structural problems.”

The biggest causes of the Wall Street sell-off have been tech companies like Facebook and Amazon. That, in turn, has raised fears that a clutch of giant tech initial public offerings worth an estimated $200 billion in 2019 may be delayed.

Whether or not that happens, the chill won’t affect Israeli high-tech, where there have been few U.S. IPOs in recent years.

“Today there aren’t any Israeli companies thinking about a major offering and in the concrete process of preparing a prospectus,” said Ian Rostowsky, a partner in the high-tech practice of the Tel Aviv law firm Amit, Pollak, Matalon.

The U.S. companies weighing IPOs have grown so big that an IPO is the only exit available to them because they are too big to buy. “Israeli companies still have where to grow,” said Rostowsky. “They can raise money from funds, they don’t have to go public.”