Tel Aviv shares closed 7 percent lower on Sunday in the first response of a developed market to Standard & Poor’s downgrade of the United States’ credit rating that has sparked fears of another global recession.
The Israeli market along with a few emerging markets in the Middle East were the first to trade after S&P on Friday cut the U.S. long-term credit rating by a notch to AA-plus from AAA due to concerns about the nation’s budget and climbing debt burden.
The TA-25 blue chip index closed down 6.99 percent to 1,074.27 points and is down 18 percent since the start of the year. The broader TA-100 slid 7.2 percent. Israel’s market is closed on Fridays and Saturdays.
The Tel Aviv market’s opening was delayed by nearly an hour as circuit breakers kicked in when shares fell more than 5 percent in pre-market trade.
The last time circuit breakers were used was on Sept. 21, 2008 after the collapse of Lehman Brothers, a spokeswoman for the stock exchange said.
The market fears the U.S. debt situation could spiral out of control and possibly lead to a double-dip recession, said Zach Herzog, head of international sales at the Psagot brokerage.
“If the U.S. sinks into a recession the Israeli economy can’t come out of that unscathed. We are dependent on sending goods and services out,” Herzog told Reuters, noting exports account for 45 percent of Israel’s gross domestic product with two-thirds of exports going to the United States and Europe.
The market is also concerned about the exposure of Israeli banks to U.S. debt. Herzog said Bank Leumi and Israel Discount Bank , the country’s largest and third-largest banks, respectively, were most heavily exposed among Israeli banks in terms of their proprietary portfolios.
Shares in Leumi ended down 8.4 percent to 13.49 shekels while Discount Bank lost 10 percent to 5.44 shekels.
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2 Responses
That the liklihood of the US being unable to honor bonds is less now than when American cities were being blacked out due to German submarines sinking coastal shipping? Look at current interest rates for government bonds (.025% for a 1 month treasury bill – you give them $1000 and at the end of the year you get 25 cents back as interest). While the US economy has problems, such as anti-business government policies, people at all levels living beyond their means, and the like – the book downgrade is meaningless in itself.
Charles Nenner, a frum market anlyst called this weeks ago
‘The weekly cycle for the MAOF shown continues down.
This market is easy to trade, since there are almost no economic numbers coming out
Therefore, we do not see the noise that we usually see in the US Investors oversees are doing very well, based on our model, while it seems that in Israel itself, institutions are caught by surprise.
In any case, our downside price target is 924
We do, however, expect a small bounce from the 1074 level’