Israel is its own market
Stock market Tsunami
Tel Aviv Stock Exchange enjoying the market chaos as it belongs neither to Asia's risky markets, nor to Europe's stumbling ones
The week that ended on May 10 was recorded as one of the best in the history of stock market in the world. The week that ends now, was a lot less impressive, and could even be defined as poor.
In the first five-and-a-half months of the year, stock exchange rates of developing countries, close to 25 percent, after a 50 percent rise in 2005. The rises didn’t skip over practically any country or any market. They also affected, if to more restrained degrees, the markets in wealthy nation, which rose between 10 to 15 percent by the end of May. Especially noticeable were the increases in markets in Austria, Australia, Germany, Sweden and Spain. The Dow Jones rose more modestly, by 8.5 percent, and the Nasdaq by 5 percent. With that, with the optimism and success, a few hard facts didn’t escape those who track the stock markets:
In no industrial country did the stock markets reach the record highs of six years ago, even without calculating inflation. In realistic terms, if you deduct an inflation of at least 20 percent, all the western markets were very far from the peaks of the spring of 2000. Even the Japanese market, that reports “leaps” every day, rose only 5.5 percent by mid-May – still 56 percent lower than its record rate.
- The United States markets kept a low profile. The ratio of share values to company profitability is reasonable, there is no unchecked flow of speculative money, and despite the good business deals of many companies, the wider public was cautious of being dragged into a second market adventure. It prefers real estate adventures – for a clear reason: Even if the monetary value of your house diminishes, you are still left with a sturdy building, with a garden, a roof, a garage, and a mortgage for 150 years. What are you left with when a company like Enron crashes? Stock worth one penny.
- In western Europe (besides London), there isn’t high demand for stocks, new nor old, and there are no significant speculative fluctuations in shares.
- Therefore, the big money flowed to the Asian markets, to eastern Europe, and even Latin America. Stock indexes in China, India, Indonesia, Peru, Venezuela, Poland, Hungary and Russia rose an estimated 30 to 45 percent from January to mid-May. There wasn’t any economic justification for this – not in companies’ business deals nor in the markets’ macroeconomic and political theaters.
- The bull markets reflected the sense of risk of both large and small fortune owners. Both were tempted to invest in exotic places like Beijing, Warsaw and Rio. They threw caution to the wind. The risk premium for investing in fluctuating and undeveloped markets like Bombay equalized with Wall Street’s deeply rooted market.
It is only natural that the inflation led to repairs. Last week, including a relatively calm Friday, shares in developing countries dropped some 7.5 percent; numerous markets (Colombia, Brazil, Argentina, Russia, Indonesia) suffered a real blow. Drops were attributed to the speeded inflation in the US and the sharp downward fluctuation on Wall Street. But this is an incorrect explanation. The cool winds are not coming from New York – but from Asia itself. Too much heavy money is chasing after too few heavy stocks. In Asia they know how to produce and market products, not shares.
And on Wall Street? Five days of plummeting indexes – and one day of hesitant climbing – erased most of the fortune profits that accumulated between January and May 2006.
Stock indexes returned to their rates at the beginning of the year, plus or minus one or two percent. Even the American rebate is rather high (five times more than four years ago!), bond markets foretell further increase, in both inflation and money value. An the White House, as if nothing happened, approves more tax cuts for the rich, which will lead to a greater budget deficit. The Bush administration’s financial policy is as anarchic and irrational as its policy in Iraq.
The high prices of oil and merchandise are pushing the world to decelerate. The push is not frenzied, but is getting stronger from week to week. Its advantage is that its effecting immediately all the speculation in raw materials, is scaring speculators and thus lowering prices.
As for the Tel Aviv Stock Exchange, it is enjoying the lawlessness: It is not considered as belonging to either the risky markets of Asia of the stuttering markets in Europe. It is its own market civilization, with its own rules, its own money, with investors and a successful business sector. Last week it dropped a mere 1.5 percent. But our small market can’t be a small bullet-proof market forever. If the financial tsunami floods the world – a phenomenon whose likelihood has increased this month – then our market will get hit too.
