These are not only difficult times for the Israeli and global financial markets reeling in the face of the coronavirus, but hard times for the financial advisers navigating between anxious investors and collapsing shares and bond prices.
Aviad Yitzhaki, head of the investment advising team at a Bank Leumi branch, said that in normal times most of his team’s services are proactive; in other words, they are the ones who reach out to clients. Clients call up at their own initiative much less frequently.
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“On an average day, we get about 140 incoming calls. These days, by comparison, we’re getting 1,000 calls a day – and we’re just one of eight of the bank’s investment centers. In most cases we’re trying to prevent people from selling funds,” he said.
After drops in stock and corporate bond prices of the likes not seen since the 2008 global financial crisis, Tel Aviv Stock Exchange CEO Ittai Ben-Zeev on Monday sought to calm fears that the bourse might be forced to suspend trading. “The bourse will operate as usual in every possible scenario and situation,” he said.
He was joined in a conference call by some of the biggest names in the Israeli financial service sector, among them Gilad Altshuler, CEO and partner of the Altshuler Shaham investment house. He warned against panic selling.
“Based on my experience, the biggest problem is even if the public exits [the markets] during a drop, in the middle of the downturn, it doesn’t return in time,” he advised. “I don’t know to what level the market will fall and I’m sure there will be more unpleasant news about the number of deaths and infections in Israel and the world. But a client who sells today or tomorrow, when this news is coming and his level of anxiety is rising has no chance of buying at that point. When he finally sees the light at the end of the tunnel, prices will be higher.”
Rivka Elgarisi, the head of advising and research at Bank Hapoalim, said that last week she had visited three other branches and saw dozens of people waiting to be seen by an investment counselor.
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“I don’t remember ever seeing something like that,” she said. “Private banking is characterized less by face-to-face meetings and more by telephone consultations.”
Hapoalim, which has the biggest team of investment counselors in Israel, about 400 in total, has seen a several-fold rise in the in the number of clients calling at their own initiative.
“We’ve expanded work hours for advisers because right now it’s very important to clients that someone is talking to them,” she explained. “Even if we ourselves don’t exactly know what is happening, we try to make them understand that they need to continue behaving rationally, but there’s a lot of feeling and psychology involved.”
Bank Leumi offers its clients advice culled from recent financial history. “The stock exchange and other markets have known difficult days in the past and many crises, but they survived to show nice gains in the years that followed,” it said in a note.
Elgarisi looks at the situation right now in a different way, but also remains bullish regarding the longer term.
“There’s a tendency to compare the current crisis to the SARS epidemic of 2002 and the 2008 financial crisis. I don’t think any of these crises are the same, and that’s what we have been stressing to our clients,” said Elgarisi.
“The one similarity to 2008 is the daily volatility, but right now the crisis is in the real economy. In 2008, the crisis was financial, and it was easy to see government intervention providing a solution,” she said.
Even comparing the coronavirus to SARS is problematic because SARS was far less widespread in terms of numbers and geographic scope.
“Suddenly there are no flights, no tourism, no schools and no meetings and these impacts reverberate. Business is feeling the effect and it’s clear to everyone that economic growth will be affected. In Israel, they’re talking about a drop in growth of almost one percentage point, if the epidemic ends in April.”
Despite that, Elgarisi sounds a note of optimism. “In the end, the recovery will begin in the markets, not out of them. The big question is when will the crisis end. When it happens, people will return very quickly to shopping and flying and everything else. We don’t forecast a quick recovery; it’s more reasonable that will see a slow and gradual rebound.”
With that, she said that some of the market selloff is a correction on overvalued stocks. “In the meantime, we’ve returned to sane prices and now we’re seeing the pressure and panic,” she said.
Banks like Hapoalim have been feeling the panic: They act as advisers and brokers to Israel’s mutual funds and exchange-traded funds, which have suffered redemptions of 36.5 billion shekels ($9.5 billion) since the beginning of March.
Yitzhaki of Leumi said the pressure to sell really emerged after Italy was struck by the coronavirus. He said advisers try to broadcast an atmosphere of calm in conversations.
“We provide clients with an overview of the epidemic and point out that it is likely to hurt the economy,” he explained. “We remind them that if they are long-term investors – those working in a five-year timeframe – you can’t time the market. But even medium-term investors, with a horizon of two years or more, can see from previous crises that despite the volatility, the markets resumed rising.”
There are several types of investors. One category is experienced investors who have been through crises before. “They call and ask: ‘I wanted to make sure, when the markets dropping, don’t sell – right?’” Others, not many, insist on selling in a falling market. “There are clients who are even more fearful, even when they are sitting on low-risk portfolios,” he said.
Yitzhaki said he usually succeeds in keeping all types of clients calm in the first call. “For anyone who calls a second time, we usually reduce the risk level in their portfolio. In a case in which the client calls a third time and says ‘I can’t sleep at night,’ you can’t refuse [to sell]. I’m the last one to keep him from sleeping at night.”