Tel Aviv Stock Exchange facing avalanche amid Wall Street devaluation

The value of the Israeli stock exchange was eroded by 36 billion shekels on Sunday. Here's where economists think it could go.

MARKET DATA at the Tel Aviv Stock Exchange.  (photo credit: AMIR COHEN/REUTERS)
MARKET DATA at the Tel Aviv Stock Exchange.
(photo credit: AMIR COHEN/REUTERS)

The stock market in the Tel Aviv Stock Exchange (TASE) dropped dramatically this week, in what can be defined as "mini-avalanches" to losses on Wall Street that were recorded over the weekend in the US. 

The declines in leading indices, including the Nasdaq, were caused by the surge in inflation. The fear is that the US Federal Reserve will raise the interest rate by 0.75% this year.

All this indicates that the American economy might fall into a recession, which may be followed by world markets —as well as the Israeli economy. 

Against this background, the leading indices on the TASE fell by more than 3.5% yesterday. 

As a result, the Israeli stock market yesterday lost about 36 billion shekels of its value, especially with losses in real estate shares as well as in bank shares, which are considered "solid" but reflect the face of the economy. 

The Charging Bull or Wall Street Bull is pictured in the Manhattan borough of New York City. (credit: CARLO ALLEGRI/REUTERS)The Charging Bull or Wall Street Bull is pictured in the Manhattan borough of New York City. (credit: CARLO ALLEGRI/REUTERS)

The bond market also experienced price declines.

The bonds for periods of ten years or more traded at yields of 3% or more. Just a year ago, government bond yields stood at about half a percent. 

The erosion of financial assets will, of course, also adversely affect the value of long-term savings channels, especially enrichment, provident and pension funds. In the first five months of 2022, these funds recorded negative returns of about 5%.

Investors' eyes are now on the May index which will be published this week, in parallel with the US interest rate decision. Most likely, the Bank of Israel's interest rate will rise by 0.25% - 0.5%. 

The May index may be higher than expected (0.8%). 

How will economists react in the capital market to recent events? 

Bank Leumi chief economist Dr. Gil Befman estimated that, following US inflation, which reached 8.6% this year, the Fed will raise interest rates this week by about 0.75%. As a result, a similar increase is expected in Israel.

However, he stated that inflation will begin to moderate towards the beginning of 2023. United Mizrahi Bank economist Yoni Fanning estimated that the Bank of Israel's interest rate will rise by only 0.25% at the beginning of July. 

The chief economist of the Psagot Investment House, Guy Beit-Or, estimates that because of inflation and the fear of an economic slowdown, the US will raise the interest rate this week by 0.75%, and the governor of the Bank of Israel will raise the interest rate by 0.5%.