Tel Aviv Joins Global Stock Market Rout, but Israeli Analysts Stay Cautiously Bullish

TA-25 index falls 2.1%, less than most major world indexes, but still 16.5% below its peak.

A trader works on the floor of the New York Stock Exchange (NYSE) in New York, U.S., January 20, 2016.
Bloomberg

Share prices on the Tel Aviv Stock Exchange fell sharply on Wednesday as global markets swooned on concerns about the impact on the world economy of plunging oil prices and a slowing Chinese economy.

Wall Street moved deep into the red, with the S&P 500 Index hitting its lowest since February 2014 and extending this year’s sell-off as oil prices continued to plummet unabated. The pan-European FTSEurofirst 300 index fell 3.3%, down 24.3% from its record last April.

Earlier in the day Asian markets led the sell-off, with Japan’s Nikkei 225 sliding 3.7% to end the day at 16,416.19, down 21% from its peak last June.

Oil prices lost yet more ground after the International Energy Agency, which advises industrialized countries on energy policy, warned that oil markets could “drown in oversupply” in 2016. U.S. crude prices sank 6.6% and Brent crude fell 4.7%

The declines in Tel Aviv were moderate by comparison. The TASE’s benchmark TA-25 index ended the session down 2.1% at 1,433.58 points, leaving it down a relatively modest 16.5% from its August peak. The broader TA-100 index finished down 2.25% at 1,230.31; only four stocks in the index ended the day higher. Turnover on the TASE was 1.61 billion shekels ($410 million), slightly above the average in recent weeks.

Technology, especially biotechnology, shares were hit hard, as were energy shares. Opko Health tumbled 10.7% to 28.95 shekels and MannKind lost 10.2% to 3.03. Blue chips were less affected, but Teva Pharmaceuticals lost 3.2% to 243.20 shekels.

In foreign currency trading, the shekel weakened against major currencies, losing close to 0.8% against the dollar to a Bank of Israel rate of 3.9830 and close to 1.2% against the euro, whose rate was set at 4.3469 shekels.

In the fixed income market, the price of the government’s 10-year Shahar bond jumped 0.62%, cutting the yield to 1.9%. Its shekel bond due in 2042 rose an even sharper 0.74% to a yield of 3.02% while the 10-year Galil bond, which is linked to inflation, rose a more moderate 0.38% to cut it yield to 0.58%.

Concerns about the global economy and weak oil prices are making stocks too risky, several traders and investors said. Others looked to central banks to help calm nerves.

“Stress is high enough to trigger a reaction of monetary authorities to calm down nerves. And [ECB President Mario] Draghi tomorrow can do something,” said Giuseppe Sersale, fund manager at Anthilia Capital in Milan. The European Central Bank holds a policy meeting today.

“I am quite pessimistic about the equity markets for the next two to three months. I do not see a 2008-style scenario, but I do see a bear market coming,” said Andreas Clenow, a hedge fund trader and principal at ACIES Asset Management.

Yaniv Hevron, chief economist at the Tel Aviv investment house Excellence, agreed, noting that the economy in the United States and many European countries were in relatively good shape and that the sell-off might present buying opportunities.

“I don’t think we’re facing a major crisis, like we had in 2008, but it’s worthwhile being cautious,” Hevron said. “I don’t think in China there is a concrete threat to the financial system. The Chinese central bank is liquid enough and banks are performing. In the United States, the Fed won’t, it seems, be raising interest rates sharply given the state of the markets today.”

Jonathan Katz, chief economist at Leader Capital Markets, said he was relatively bullish on Israel but warned that it will be affected by the world economy.

“In Israel we are still in a comfortable situation — moderate but reasonable economic growth, rising industrial exports, demand for new workers, higher wages and continued growth in consumer spending,” Katz said. “Near-zero interest rates will remain low at least until the start of 2017.”

But he warned: “We’re still affected by what happens in the world. It would enough for headline inflation in the United States to rear up — and that’s a reasonable assumption — to keep the stock markets in Israel and the United States from rising. In any case, the Israeli stock market is more attractive today than the U.S. market.”