Olmert: Israel has no reason to fear economic meltdown

[Ognir]

http://www.haaretz.com/hasen/spages/1028274.html

Prime Minister Ehud Olmert tried to reassure Israelis on Sunday that the state's economy was in good order, as his cabinet turned its attention for the first time to the financial turmoil that has rocked world markets.

Olmert spoke shortly after the Tel Aviv Stock Exchange delayed the opening of trade for fear share prices would plunge. But the market shook off its initial panic, buoyed by soothing comments from the Finance Ministry, and ended with only narrow losses.

"Some have called Israel's economic policies conservative," Olmert noted at the start of the weekly Cabinet session. "In retrospect, everyone today acknowledges that conservatism is sometimes an advantage and not a drawback."
   Advertisement
"Now we have to keep an eye on things to ensure the financial stability of the Israeli economic system," he said. "There is no reason to fear and no reason to act in a manner that is not judicious or rational."

Israeli stocks cut early losses, still trading below flatline

Tel Aviv stocks plunged in early trading on Sunday, and while they were able to stage a relative recovery, they were still trading well below the flatline at mid-day as local investors reacted to the meltdown of financial markets worldwide over the last week.

Total turnover as of mid-day was about half a billion shekels.

Sunday was the first opportunity Israelis had to respond, following the Yom Kippur break.

Blue chips were losing nearly 6.5%. The TelTech-15 index - heavy with Israeli shares dual-listed on Wall Street - and the real estate index were both sharply lower, but clawed back some ground after mid-morning losses of around 16%. Both had been brought low in a selloff fueled by fears that large-cap companies may implode as sources of credit evaporate. As of 13:00 the Real Estate-15 index was losing 12.3% and the Tel-Tech index was down 13%.

Local investors have not had a chance to respond to tumbling stock markets since last Tuesday - until Sunday morning. During that time, to recap, Britain decided to partly nationalize its banks, Washington began mulling direct loans from the U.S. Federal Reserve to corporate America, Iceland closed its stock exchange as it slipped towards bankruptcy, share prices around the world wilted even more and the International Monetary Fund urged the world's developed nations to work together rather than take individual steps that won't work anyway, because that the crisis had become a worldwide problem.

Meanwhile, here in Israel the start of trading Sunday morning was delayed by 45 minutes, as automatic safeguards kicked in at the Tel Aviv Stock Exchange. When the leading TA-25 index begins the day with a loss greater than 8%, trading is automatically suspended for 45 minutes to give investors a chance to think through their moves. However, the hiatus seems to have had little effect, at least in stopping the retreat.

As said, at mid-session the benchmark TA-25 index, consisting of the 25 largest-cap stocks on the TASE, is losing 6.4%. The TA-100 index, which has the 100 heaviest stocks on the exchange, is down 7.1%, after starting on a loss of nearly ten percent.

Earlier in the day, the Tel Aviv Stock Exchange web site had been crashing due to the load of surfer traffic. At present it's working fine.

Among the hardest-hit sectors today are technology and real estate. Regarding the first, as said, a lot of the companies listed on Israel's TelTech-15 index are also listed on Nasdaq, or in London, where share prices have been falling nonstop for days.

The Finance-15 index is, perhaps oddly, losing "only" 6% and then some, perhaps because Israel's economic leaders keep driving home the point that unlike many of their peers abroad, the local banks are stable. That said, shares of Bank Hapoalim are losing 4.4% and Leumi is down 5.3%. Both had sustained sharper losses in morning trading. The only investments firm on the index, DS Apex, is losing 15%.

Typically defensive stocks include food and telecoms, on the grounds that people have to eat and will talk. Today both are in the doghouse together with almost all other stocks: Partner Communications is down 4.7% and Cellcom is losing 5.5%. Moving onto food manufacturers, Osem is losing 3.5% and Strauss Group is down 1.7%.

Drug company Teva, quite the favorite among investors, is losing nearly 9%. Earlier in the day it had been down 10%.

As for the real-estate index, it's chock-full of companies associated with heavy borrowing. These are companies that typically finance their construction projects and acquisitions through debt, and right now, as the credit crunch bites deep and the international money markets seize up - investors are terrified that the companies don't have the resources to repay debt coming due, and won't be able to borrow more to recycle their liabilities.

Yields on bonds associated with Israel's biggest tycoons are shooting sky-high, deep into junk status. The yield on Africa Israel's B15 bonds (associated with Lev Leviev) has risen beyond 34%, and the yield on Jerusalem Economic Corporation's B5 bond (associated with Eliezer Fishman) has passed 14%. Yields on Delek Group's B13 bond, associated with energy and real estate magnate Yitzhak Tshuva, have climbed beyond 13%. Levels like these reflect growing pessimism, as said, that the companies will be able to meet their liabilities