Tel Aviv Joins Global Market Sell-off Amid Growing Worries Over Chinese Economy

Main shares indexes post declines of more than 4%, but government bonds rise.

Outside of the Tel Aviv Stock Exchange.
Bloomberg

The great global stock market sell-off reached the Tel Aviv Stock Exchange on Sunady, with the main share indexes dropping 4% as small investors off-loaded shares and corporate bonds in response to worries about the Chinese economy.

But market experts kept their cool head, saying that while further declines were likely they would be limited.

“While the drops are still not over, I don’t think we’re talking about a crash,” said Zvi Stepak, a partner in the Meitav Dash investment house. “The global market could fall 10% or 15% and in Israel another 5% after Sunday’s fall. Naturally the volatility will increase over the coming weeks and we expect to a few days of sharp falls and rises.”

The TASE’s benchmark TA-25 index and the broader TA-100 index each dropped about 4.1% Sunday, leaving them at 1,625.97 points and 1,416.39 points, respectively. Not a single one of the 100 shares in the TA-100 finished the day higher, and many blue chips took big hits. Teva Pharmaceutical Industries ended down 3.1% at 259.60 shekels, Israel Chemicals lost 5.2% to 23.48 and Delek Group shed 5.9% to 1,089.

The TASE doesn’t trade on Fridays, which meant that Israeli stock market investors had to wait two days before joining the global sell-down.

The Tel-Bond 20, 40 and 60 corporate bonds indexes declined between 0.5% and 0.65%.

Turnover was close to 1.4 billion shekels ($360 million), about triple the average for a Sunday, when foreign investors are inactive. The Israeli VIX volatility index, popularly known as the fear index, rose to 22%, or double its level from last week.

Israeli mutual funds, the preferred investment channel for small investors, suffered redemptions of at least 1 billion shekels, with funds investing in a mix of shares of stocks and bonds taking the biggest hit. That compared with redemptions of 2.1 billion shekels for all of July.

But Ziv Panini, trading room manager at Migdal Capital markets, speaking in the middle of a hectic trading day, shared the relative bullishness that investment advisers were broadcasting “The atmosphere in the bourse is tense but there’s still no great panic,” he said.

Investors were not moving to the safe harbor of cash. Much of the money fleeing shares and corporate bonds on Sunday went into long-term government bonds. The treasury’s 10-year shekel bond climbed 0.41% to reduce its yields to 2.12%. Its inflation-indexed bond for the same period finished the day 0.2% high, with its yield cut to 0.64%.

The plunge in Tel Aviv came amid fears that economic growth in China is slowing, threatening to further drag down an already weak global economy. A looming snap election in Greece and a closely watched conference hosted by the Federal Reserve in the United States are likely to add to the jitters this week, in particular as investors look for hints on when the Fed will raise interest rates.

Global stock markets were already teetering over China, but on Friday China worries pushed them over the edge after a survey showed Chinese manufacturing was the slowest it’s been since the global financial crisis in 2009. That added to other worrying clues about the country’s health, including falling exports.

European shares suffered their worst one-day fall in nearly four years on Friday, when the pan-European FTSEurofirst 300 index closed down 3.40% at 1,427.13 points, its lowest since January and its worst one-day drop since November 2011.

Wall Street on Friday had its steepest one-day drop in nearly four years, leaving the Dow industrials more than 10% below a May record. The Dow Jones industrial average closed down 3.1% at 16,459.75, the S&P 500 lost 3.2% to 1,970.89 and the Nasdaq composite index dropped 3.5% to 4,706.04.

China devalued the yuan earlier in August, by pushing its official guidance rate down 2%. The country’s central bank has said there was no reason for the currency to fall further, but investors are also bracing for further interest rate cuts.

“The big story is what’s happening in China and what will be the reaction of the [Chinese] government,” Gozlan said. “If it doesn’t respond appropriately, it could lead to a collapse in the markets. In the commodities and emerging markets, there has already been a kind of min-crash led by the Chinese market.”

But most analysts were more sanguine, with many urging investors to stay in the market.

“We’re not looking at a crash but rather a sharp correction. A collapse of the kind we saw in 2008 won’t happen,” said Dudi Reznik, head of research and macroeconomics at Leumi Capital Markets, referring to the crash set off seven years ago by the U.S. real estate bubble. “With all due respect to China, the situation in the United States is fine.”

Reznik said global markets could fall 10% or 15% but with interest rates at historic lows (see story on this page), investors in the end have little alternative to investing in shares.

Bank shares and small cap stocks led the declines, with Bank Leumi ending down 5.1% to 14.84 shekels, Bank Hapoalim down 4.7% to 20.21 and Israel Discount Bank down 5% to 7.27. The TASE’s small-cap index tumbled 6.2% to 585.55 points.

“Uncertainty mainly hurts the banks, so the sector responded harshly,” said Meitav Dash’s Stepak. He said small shares were hit because they had performed so well in recent weeks, whose shares are expected to be given bigger weightings when the TASE revises its system of share indexes.

The TASE has been having a good year, with indexes reaching record high recently. Even after Sunday's drop, the TA-25 index was still up nearly 11% so far this year and the TA-100 index was up 9.9%. But the TA MidCap-50 index is up 16.5%.

Technology stocks were also hurt because many are dual-listed on Wall Street, where they were pounded at the end of last week. Nova led TA-100 stocks lower, sliding 7.7% to a close of 42/.63 shekels. TowerJazz lost 7.5% to 48.10 and Compugen 6.9% to 19.88.

With reporting from Reuters.