War? What War?

They say that Tel Aviv residents live in a bubble.

If you have been up north recently, especially in the Galilee, and come back to Tel Aviv, you have seen the difference: The north is deserted. The cities and towns are silent, stricken and scary. An hour and a half away, in Tel Aviv, it is business as usual: The restaurants are packed, the malls are thrumming and life goes on.

The rest of the country calls Tel Aviv residents decadent, detached from Israel's reality, closed off inside their city limits.

And this time, there is one Tel Avivian that ought to know better - one that ought to be demonstrating a keener ear and a warmer heart than the people thronging the cafes, but is treating the war not 250 kilometers away with utter contempt. That is the Tel Aviv Stock Exchange (TASE), the place where hundreds of thousands of investors, Israelis and foreigners alike, meet.

On Sunday, the TA-25 Index advanced by 0.8 percent to 786 points, only 3.5 percent below its level on Wednesday, July 12, the day on which Hezbollah forces kidnapped two Israeli soldiers and sparked the conflagration.

For the sake of comparison, that same stock exchange, Tel Aviv's, sank 10 percent in the two months before the war, because of the retreat by emerging markets such as India, Turkey and China.

Why is the TASE so blithe about one of the most serious conflicts in which Israel has been involved, a war that has paralyzed economic activity in the north, that has cost human lives and raised the risk premium of the entire Middle East?

They don't make their money in the North

The TASE's strength is all the more remarkable when you consider that today - as opposed to during Israel's previous wars - light-footed foreign investors are responsible for much of the financial activity in Israel, and they can see the awful images coming from Lebanon and the Galilee.

Some investment managers believe that investors simply do not understand the true price that the war will exact, and that major players have a tremendous interest in keeping the indexes high. But at the end of the day, the bill will be delivered to the table.

But there is another possible explanation, no less important. Look closely at the list of the 25 biggest companies on the TASE and ask yourself: Where do they make their money? That will explain the complacency on the TASE as northern Israel burns.

The biggest companies on the TA-25 index are of three types. The first is exporters with practically no dependence on the local market. This list includes the likes of Teva (generic drugs), Ormat Industries ("green" energy), Perrigo (generic drugs), and Israel Chemicals (potash and others).

The second kind is investment companies that used to focus on the local market, but no longer do so. These include The Israel Corporation, Africa Israel and Gazit Globe.

The third type is companies that do operate mainly in the domestic arena, such as the big banks and the cellular carriers. These will be hurt by slowing demand and the collapse of small businesses.

But even the companies in the third group are well protected against the flames in the north. In most cases, they are powerful monopolies or oligopolies with enormous market shares and a talent for milking the public of disposable income, whether during boom or bust.

The good news, and the rest

In general, the companies responsible for most of the value on the TASE are giants with more than ample padding, which can stand up well to economic jolts.

The good news is that the strength of the TASE during Lebanon War II reflects the strength, and international diversification, of most of Israel's biggest companies. It also reflects the tremendous development of Israeli exports since the 1980s.

The sad news is that the TASE's behavior utterly fails to reflect the economic disaster that has befallen thousands upon thousands of families that fled the missiles blasting the north and businesses ground into dust by the conflict. If the war goes on, the heavy macroeconomic cost of security will result in rising deficits and tax rates. And ultimately, it will impact on every niche of society, every last corner of the land - even, finally, the Tel Aviv Stock Exchange.