Tel Aviv Stock Exchange: Stagnant & Reeling
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| Tel Aviv 100 Stock Index: Stagnant? Or Irrelevant? What's Next? |
All the top management of the Tel Aviv Stock Exchange has resigned. According to "Yediot Achronot" business section (Mamon), the top brass has been at odds with the government's top regulator. It seems like reality is a bit more complicated. The Israeli stock market has been experiencing a slow stagnation for the last three years. Not necessarily because of the underlying business condition, business has been good in Israel. Most of the blame goes to the commercial bond market. The last five years, Israeli companies preferred issuing bonds rather than stocks. Partly a consequence of heavy regulation on common stocks, reflecting a change in policy of encouraging more competitive (individual) stock ownership. Israel, with almost an oligarchy economy, ended up with a stock exchange dominated by a small number of "ownership groups". Another factor in the drop of trading volume on the Tel Aviv stock exchange is the steady drop of foreign investors. Foreign funds prefer larger exchanges with deeper trading. When things go sour, it's easier to get out.
Changes in the Israeli financial landscape from a complete freezing of the start-up IPOS, to the steady growth of the luxury real estate sector, to a fast growth of the commercial bond market. Some of the shifts in Israeli investment preferences is driven by growth in cash at retirement accounts. While Europe and the US have seen their economies slow down, employment down and probably less contribution into private retirement funds, in Israel the opposite is true. Israeli job market is almost at full employment. Add to this steady flow of cash, the desire of Israelis to copy every financial scheme Americans have ever invented. So the commercial bond market has taken a life of it's own (the last five years.) But the party is over. Nochi Dankner's IDB empire seems to be the first to crash under debt from bonds issued to banks and insurance companies. Other companies have cut down their dividends and are even cutting down on the principal (they will pay back LESS than they borrowed.) With all that unsecured debt, any time the economy slows down, someone is going to run out of money to pay back bonds.
Back to the Tel Aviv stock market. The trend to move away from common stocks is probably going to reverse itself. I wouldn't hold my breath, it could take a few years. With all the new start-ups in tech, some will eventually go public and raise money with stock. The more established companies, especially these dual listed on Tel Aviv and on foreign exchanges, will also yield good profits and will attract new investment. Maybe even the Israeli regulators will ease on their tight policies and may even reduce taxes on long term capital gains (ownership of common stock for mor than 2 years.) In Israel, changes happen quickly and affect markets dramatically. It is just that the spotlight is off the stock market and we have to wait, this will also change. In the mean time, maybe fresh young faces will take up senior positions at the Tel Aviv stock exchange, and that will be a nice change for everyone.
Back to the Tel Aviv stock market. The trend to move away from common stocks is probably going to reverse itself. I wouldn't hold my breath, it could take a few years. With all the new start-ups in tech, some will eventually go public and raise money with stock. The more established companies, especially these dual listed on Tel Aviv and on foreign exchanges, will also yield good profits and will attract new investment. Maybe even the Israeli regulators will ease on their tight policies and may even reduce taxes on long term capital gains (ownership of common stock for mor than 2 years.) In Israel, changes happen quickly and affect markets dramatically. It is just that the spotlight is off the stock market and we have to wait, this will also change. In the mean time, maybe fresh young faces will take up senior positions at the Tel Aviv stock exchange, and that will be a nice change for everyone.
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In the 1960s H. Gardner Ackley’s Macroeconomic Theory was the leading book of
its day. The book was 596 pages long, and was seen as accompanying Keynes’s
General Theory (Ackley writes in the preface that he has his student purchase the
General Theory, and that he assigns seven chapters from it.
gardner ackley was my prof in macro. i kinda figure he was the man who got us into the viet nam war around '65. He was acting as chairman of the council of econ. advisers '61- '68.
his book stated per say's law when bond interest rates go down bond prices go up. The BOI lowered interest rates 27.6.13 from 1.5 to 1.25 where they remain today. In times of recession and economic standstill, no inflationary pressure, they lower the interest rate.
Per http://bit.ly/13YVh4f Money market interest rates include Treasury bills (Makam).The TB rate is the discount at which the TB is issued by the gov't. TB rate is not stated on the bill itself, but like interest rates on bonds, has an inverse relationship to its price. TBs serve as a reference rate for the calculation of interest rates on many other money market assets (Botha 2002:216-216)
Should we buy Makam now with the TASE "stagnant and reeling?"