Sharp declines were recorded Sunday morning on the Tel Aviv Stock Exchange, with the leading indices down more than 1.6% at the start of trading. Leading the plunge are bank stocks, typically viewed as a mirror image of the broader economy in any modern Western country. The sole outlier is defense contractor Elbit Systems, whose shares are rising, as the company is expected to be one of the main beneficiaries of increased defense budgets in Europe.
On Friday, the last trading day in the foreign exchange market before it reopens on Monday, the dollar surged past 3.71 shekels - a significant rise that reflects not just a higher risk premium for Israel, but more importantly, investors' growing anxiety over the rapid descent into constitutional turmoil. That concern is fueling fears that foreign investors will begin offloading Israeli assets en masse starting Monday, at least until the dust settles.
Over the weekend, Israel Hayom spoke with several senior investment managers who oversee large sums of foreign capital in Israel. When asked what they planned to advise their clients ahead of Sunday's cabinet meeting, during which the government is expected to move actively toward dismissing Attorney General Gali Baharav-Miara - one said: "If I had to advise an Israeli institutional investor to invest abroad, would I send them to Ukraine? Or Russia? Now you understand how foreign investors are looking at Israel."
Given this atmosphere, Israeli institutional investors are preparing for a potential fire sale by foreign investors. Whether or not such a sell-off materializes remains to be seen, but the possibility is hanging over the market.
To gauge how disconnected today's sell orders are from economic fundamentals, look no further than bank stocks: Discount Bank is down 3.6%, Bank Leumi 3.1%, Bank Hapoalim 3%, and so on. Over the past month, banks released strong financial reports, with some unveiling investor-friendly strategic plans. Expected returns on equity over the next two years are projected to be in the double digits, and dividend payouts are anticipated to reach half of net profits. Theoretically, this should be attracting institutional buying, so why the sell-off? To get ahead of the foreigners. At least that's the word on the trading floors this morning.
Real estate stocks are down about 2.7%, with investors concerned that banks could adopt a more defensive posture, tightening lending for the property sector. That would increase pressure on developers and deter households from taking on long-term mortgages, a scenario that could quickly spiral into a full-blown housing market crisis.
One way or another, what's happening today on the Tel Aviv Stock Exchange has little to do with economic fundamentals. It's all about the political, diplomatic, and security crisis that the government is steering Israel into.
