Japan's Struggle to Control Reactors Spooks Markets, but TA Stands Firm

Tel Aviv stocks maintained positive territory yesterday in a day marked by violent swings on world markets. Asian equities rallied strongly, marked by a nearly 6% gain in Tokyo. But stocks in Europe and later on Wall Street swung down about 2% as estimates of the damage Japan suffered from the earthquake and tsunami last Friday mounted - and concern arose that it was losing control of its damaged nuclear reactor at Fukushima.

Israel's economic fundamentals theoretically support the market, explain analysts, but at this time of extreme economic uncertainty, correlation between the markets has been rising. Israeli stocks will fall today, projects Daniel Rapoport, head of international trading at Excellence.

World investors also have an eye on Bahrain, where protesters and government forces have been clashing.

Asian exchanges advanced across the board yesterday, closing before the latest set of developments regarding Japan - namely, mounting chances of a meltdown at the Fukushima nuclear plant, and a remark by European Union's energy chief, Guenther Oettinger, to the European Parliament that the plant was "effectively out of control" after the cooling system further broke down. Workers had to withdraw briefly from the stricken plant yesterday because of surging radiation levels. A helicopter supposed to spray water on the most troubled reactor also withdrew. The last recourse was for police to spray the site with water cannons normally used to quell riots.

EU energy czar Oettinger also remarked that there could be "further catastrophic events" in the hours to come. Later he added that he didn't have privileged information but rather had been speaking based on press reports, but his comments spooked investors.

Tokyo rises, Europe falls

Ahead of these developments, the Tokyo benchmark index closed with a 5.7% gain following a nearly 11% drop the day before. South Korea stocks advanced 1.8% and Indian shares rose 1.1%. Chinese equities gained 1.5%.

However, reports of Japan's deterioration had time to reach Europe before the stock markets closed for the day. All closed lower for the sixth day in a row, most losing about 2%.

The state of Japan and sudden fear over the continent's own nuclear power facilities wasn't the only concern: European bank shares tumbled after Portugal's sovereign debt was downgraded, and yields on its government bonds rose.

Tel Aviv investors were not entirely detached from these developments yesterday. "The markets climbed 1.2% in the morning. But as soon as people understood that there would be more trouble ahead, the markets started weakening alongside Europe," said Rapoport. "Europe also started positively but share prices slipped throughout the session." Ultimately the benchmark TA-25 index ended 0.6% in the green and the broader TA-100 index ended up 0.8%.

Indicators for the start of trading today include how U.S. markets will have reacted to the news, said Rapoport. As of writing, the benchmark Wall Street indexes were down about 2.5%.

The Asian markets jumped yesterday, but that was then and today they're likely to retreat, Rapoport predicted - and so will Israeli shares. "The market is intensely nervous now and therefore trading turnovers are also high. Investors are jittery. At the moment, the correlation between the markets is growing - the markets are reacting in tandem," he told TheMarker.

Theoretically Israel's economic fundamentals are strong, while U.S. data has been weak: Building starts were weaker than expected, as were new home starts. "Here the economic growth has been stronger than expected," Rapoport said. "Yet even so, given the level of uncertainty in the markets, the paramount factor is the correlation between the markets. That means we can't avoid it: We will apparently join these drops today."

Real estate stocks leap

Yesterday Israeli real estate stocks powered ahead: All gained ground, with Africa Israel leading the pack on a nearly 5% gain. Gazit Globe gained almost 3% after filing its financials for 2010 and reporting the salaries of its executives (See story, page 11 ).

Also starring among the real estate pack was Habas, which gained nearly 10% after announcing intentions of international expansion, and a plan to establish a hub for its operations in the U.S.

Technology company Ceragon gained 5.1% after announcing 200 layoffs in a round of efficiency measures after merging with its new acquisition, Nera Networks.

Mobile operator Cellcom bounced 1.4% higher despite opening with a negative arbitrage gap, having lost 0.9% on Wall Street the night before.

While trading turnovers have been heavier of late, yesterday's was relatively thin, at just NIS 1.6 billion.