Trade War Worries Send Tel Aviv Share Prices Into a Tailspin

But, analysts say local conditions should insulate Israel from U.S.-China trade war

An electronic board displaying market data is seen at the entrance of the Tel Aviv Stock Exchange, in Tel Aviv, Israel January 29, 2017.
BAZ RATNER רויטרס

Tel Aviv shares plunged on Sunday to their lowest level in fourth month after the Dow Jones Industrial Average lost more than 1,000 points last Thursday and Friday amid nervousness about a potential U.S. trade war with China.

In spite of the market’s swoon, analyst said Israel and the Tel Aviv Stock Exchange should not be affected by developments in Washington and Beijing. “Investors in Israel need to differentiate between the global and Israeli markets,” said Yariv Yourista, managing director of the Edmond de Rothschild Fund Management in Israel.

In Tel Aviv, the benchmark TA-35 index dropped more than 2.9% to end at 1,427.67 points, while the TA-125 shed 2.8% to 1,297.79, with only 120 shares in the index ending higher. Turnover was a relatively heavy 897 million shekels ($257 million).

President Donald Trump’s plans for tariffs on up to $60 billion in Chinese goods moved the world’s two largest economies closer to a trade war as China declared plans to levy duties on up to $3 billion of U.S. imports including fruit and wine, even as it urged the United States to “pull back from the brink.”

It was the second time in less than two months that global markets took a steep drop after concerns about rising interest rates prompted a sell-off in February.

Yourista noted that markets are already nervous about rising interest rates and about Trump’s overall behavior, which risks pushing the world into a trade war. However, for now, the Trump tariffs covered no more than $60 billion of imports, so that the tariffs will cost China just 0.1% of GDP.

Even if a trade war does break out, Israel is less likely to be affected, he said.

“At the moment, shares here are reacting the same way as elsewhere as part of a general sentiment,” Yourista said. “But not only will the imposition of tariffs not affect corporate performance in Israel, the economic situation here is different. Interest rates will not be rising anytime soon, inflation is absent and the institutions have raised a lot of capital this year.”

Israeli long-term bond yields are at an historic low, in contrast to the high yields in the U.S.

Harel Gilon, co-CEO of Oppenheimer Israel, noted that there were two more weeks before the United States announced which products are covered by the tariffs. Until then, it is impossible to know how much impact they will have.

“We think that Trump, who has expressed pride until now about a rising Wall Street, would be happy to prevent a sharp drop in the stock market,” he said.

“Monday’s opening will be important, because it will show how deep the profit-taking will be, as will the end of the [trading] week on Thursday. If there’s been no recovery by then, closing positions could exacerbate the declines,” Gilon warned.

In Tel Aviv, bank stocks were particular hard hit, with Leumi skidding 3.6% to 20.71 shekels and Hapoalim losing 3.2% to 23.80. Kenon Holdings dropped 6.2% to 59.20 and Frutarom lost 5.9% to 329. Clal Insurance fell 2.8% to 52.99 even though it reported tripling fourth-quarter net to 370 million shekels.

The Israel Corporation fell 1.55% to 679.40 even though it reported it would pay a $120 million 2017 dividend, its first in two years.

Among the few gainers, Jerusalem Economy rose 1% to 8.16 after it reported on Thursday a 2017 profit attributable to shareholders of 68 million shekels, versus a loss of 340 million in 2016. Tefron rose 1.7% to 3.22 after it said over the weekend its bank creditors agreed to take just 82% of the $23 million they are owed in an early repayment of the debt.

In addition, the two medical-marijuana companies traded on the TASE registered gains – Medivie rose 3.5% to 70.40 and Together 0.5% to 7.54.