The Tel Aviv Stock Exchange ignored the coronavirus for weeks, but on Sunday the disease finally struck: The exchange’s benchmark TA-35 ended the day down 2.3 percent, the broader TA-125 by 2.6 percent and the banking index by 2 percent.
Stocks fell a day after the Health Ministry reported that nine of a group of 77 South Korean nationals who visited Israel and the West Bank this month tested positive for the coronavirus, also known as COVID-19. At this stage it is not yet known whether they were infected with the virus before or after arriving in Israel. The ministry expanded quarantine regulations to include those returning from South Korea and Japan.
But the main factor appeared to be the impact of the coronavirus on the global economy, especially as cases were increasingly appearing outside of China. The International Monetary Fund predicted on Saturday the outbreak would lower China’s growth this year to 5.6% and shave 0.1 percentage points from global growth.
On Wall Street, the Nasdaq composite dropped 1.79 percent on Friday.
“The coronavirus is a black swan,” said one fund manager, referring to the concept of a rare, unpredictable event that has a profound effect on the markets and the economy. “The virus has taken a toll on the global economy in the current quarter and it seems it will in the second quarter, too, because it is spreading outside of China. The declines [in the market] are due to its spreading outside of China. Uncertainty in Israel has grown after the story with South Korea.”
Outside China, there have been more than 1,200 cases in 26 countries, the World Health Organization estimates, with large numbers reported in South Korea and Italy.
“Because we don’t know when China will return to full economic activity, there have been waves of pessimism,” said Bank Leumi economist Gil Bufman. “The first wave was with the discovery of the virus and the understanding of how infectious it was. The second wave was over the weekend when everyone saw how widespread the problem is and the damage it will do to the economy. It was against this backdrop that yields in the U.S. have dropped.”
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On Friday the price of gold rose 1.5 percent to its highest in five years while the yield on 10-year U.S. treasuries dropped to 1.45 percent and well under the 1.9 percent, which Bufman saud was consistent with the general state of the U.S. economy.
In Israel, the insurance sector posted even sharper losses, with Migdal ending the session off 4.8 percent to 2.69 shekels (79 cents), Clal by 4.7 percent to 46.20 and Harel by 4.6 percent to 23.56 out of concern that the virus was causing global investors to move out of stocks to safe havens like gold and U.S. treasury bonds – a trend that threatens to hit the insurers’ portfolio hard and force them to increase their collateral under international Solvency II rules.
Travel and tourism shares, which have already felt the direct impact of the coronavirus, declined even more sharply. Fattal Hotels ended down 7.2 percent in heavy trading at 463.70, Isrotel down 5.2 percent to 54.07 74 and El Al Airlines 6.3 percent to 79 agorot.
Bufman said he didn’t know whether markets had lfurther to fall. In any case, he said that based on markets’ behavior during the SARS epidemic, prices would eventually return to their pre-crisis levels.
“Compared to the coronavirus, the SARS virus in 2003 spread more slowly but was more deadly, while the coronavirus has been spreading faster but has been less deadly. In 2003, with SARS, everyone fled to the dollar and the dollar index strengthened by 4 percent. After it was all over, it went back to its pre-crisis level. Gold prices rose by 15 percent and dropped back after the virus was contained,” recalls Bufman.
The fund manager who termed the coronavirus a black swan added that “there’s no reason to make a lot of changes in your investment portfolio right now. The markets will calm down. The important question is how far the virus will spread, and we have no answer for that,” he said.
IBI Investment House chief economist Rafael Gozlan was far less bullish. “Stock market investors [globally] have been too optimistic, too complacent,” he said.