Market experts on Monday said they are not worried that the global credit crunch, which last week sent stock indices worldwide into a tailspin, could further torpedo global equity markets.
"What's happening is a correction to a changing market, not necessarily a global financial crisis," said Yair Alek, CEO of Axioma Investment House. "The market is starting to adjust to an environment in which interest rates worldwide are on the rise and that transactions made worldwide are becoming significantly more expensive, which in turn reduces the liquidity that has boosted the markets over the past four and half years."
Following its biggest one-day losses in more than a year, stocks in Tel Aviv rebounded Monday with the benchmark Tel Aviv 25 index rising 1.4%, to 1,104.63 points, while the Tel Aviv 100 and Tel-Tech indexes also logged substantial gains.
"The trigger for Sunday's crisis was last week's sharp falls on world stock exchanges, particularly on the New York Stock Exchange, which were catalyzed by the collapse of the US subprime mortgage market," said Tamir Porat, deputy investment Manager at Clal Finance Batucha. "The markets reacted instantly and strongly on fears that a lending slowdown in a housing market that is already depressing US home prices could spill over into a broader credit crunch, stop mergers and acquisitions and slow economic growth."
Last week, stocks tumbled around the world on concerns higher borrowing costs would slow down takeovers, spur bad debt and cut earnings. The Dow average fell 4.2%, the S&P 500 dropped 4.9% and the Dow Jones Stoxx 600 Index in Europe lost 5.1%, suffering its worst week since March 2003. Global markets were mixed when trading resumed after the weekend.
The main question for money makers and financial analysts on Monday was whether markets now face another isolated correction or the beginning of a continued downward trend.
"It is too early to tell only the next few days will be able to give us an indication," said Porat. "However, as basic economic fundamentals are good and the global economy is growing over 5%, it is more likely that we are experiencing another correction."
Similarly, analysts at Leader Capital Markets said in a research note, that share and bond markets would continue to be influenced by the nervousness in the global markets but that long-term declines weren't likely in the cards.
"According to our assessment, this is a temporary correction and not an ongoing crisis. The US economy is stable and there a number of positive economic data beyond the crisis in the subprime mortgage market, while the Israeli economy is also showing signs of continued growth prospects," Leader said.
There's no need to panic
Amid a nervous market and volatile prices on global and local stock exchanges, analysts and market experts said the best advice they had for investors was to sit tight and not panic.
"At this point, I would not do anything, but stay in the market and wait how the global and local markets develop over the next few days to see whether last week's downward trend will continue or not," said Yair Alek, CEO of Axioma Investment House. "There is no reason to panic and sell off in a situation of uncertainty."
Following the losses on world markets on Friday triggered by warnings of a global credit crisis, the Israeli investor public on Sunday panicked and the result was NIS 1.5 billion in mutual fund redemptions and big sell-offs of all kinds of securities making for huge losses.
Still other market experts believed the falling markets represented an opportunity for buying shares cheaply.
"In the face of recent sell-offs by investors and stocks still being cheap compared with earnings, the markets offer an opportunity for bargain-seekers," said Tamir Porat, deputy investment manager at Clal Finance Batucha.
Porat recommended investors take a defensive position in organizing their portfolios and focus on stockpicking of large companies such as the telecoms rather than more risk-sensitive sectors such as banks.
"There is no need to reduce the weight of shares in the portfolio. What's important is good spread and proper diversification of the portfolio. Our recommendation is to have 15 percent to 20% in shares and bonds on the global markets and the rest invested in the local market."
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