TASE plunges almost 7% due to US credit-rating downgrade

Steinitz: "Countries that lived beyond their means are today paying the price."

Tel Aviv Stock Exchange TASE 311 (R) (photo credit: Gil Cohen Magen / Reuters)
Tel Aviv Stock Exchange TASE 311 (R)
(photo credit: Gil Cohen Magen / Reuters)
The Tel Aviv Stock Exchange suffered massive losses on Sunday, as trading resumed after Standard & Poor’s decision two days earlier to downgrade the United States’ credit rating.
The benchmark TA-25 Index plunged 6.99 percent and the TA-100 7.2% by the end of trading, bringing the consecutive number of days in which Israeli markets have fallen to eight. The TASE’s opening was delayed threequarters of an hour with the TA-25 down 6% in pre-market trading. The index lost 6.3% last week.
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Discount Investment took the biggest hit from the TA- 25 group of companies, its shares falling by 17.5%. Nice Systems fell 9.8%, Bank Hapoalim 9.3% and Delek Group 9%.
In an unprecedented move, S&P lowered the US credit rating from a perfect AAA to AA+, as it raised doubts over the ability of Congress’s deficit reduction plan to halt the country’s debt crisis. The decision followed what has been labeled the worst week for global markets since the 2008 financial crisis.
Finance Minister Yuval Steinitz and Bank of Israel Gov. Stanley Fischer held an emergency meeting on Saturday night in anticipation of the dramatic losses, and released a joint statement in which they promised that they were following all developments and were prepared to use all the tools at their disposal to aid the economy.
“It must be pointed out that the Israeli economy is doing well from a macroeconomic perspective and the influence of the global debt crises on it has been limited until now, thanks to the resolve that was attained, among other things, by the budgetary discipline of the past few years,” the two men said.
Steinitz on Sunday morning discussed the pressure on Israeli markets in relation to ongoing demonstrations over the cost of living, telling Army Radio that “the government cannot respond to all these demands.”
Calling the demonstrations of at least 300,000 people the previous night “impressive,” Steinitz said, “Just as we have been attentive to public sentiment and to the fight over the cost of living and housing prices, so too the public must be attentive to what is happening in the world.
“We are still navigating the Israeli economy through difficult times. We must be responsible and cautious. We must maintain the general economic policy structure and budget framework,” he said. “Countries that lived beyond their means are today paying the price. We do not want to be in the situation that Greece, Spain and others find themselves in today.”
Psagot Investment House said in a report that investments would be affected in the short-term by three simultaneous developments: the economic situation in the US, the European credit crisis and the public protests in Israel over the cost of living.
“The Israeli share market should act in correlation with global markets, and in addition will be negatively affected by the consequences of the social protest and geopolitical risk,” head of research Yaniv Kunis said.
Meanwhile, the Israel Export Institute said exports were already suffering as a result of the economic problems in the United States.
According to data it published on Sunday, sales to the US reached around $6 billion in the first half of 2011, growth of just 1.5% from the corresponding period the previous year. Sales of medical drugs to the US rose 13% to $2.68b. and diamond sales also rose, without which exports would actually have dropped 7% in total, the institute said.
“The data are especially worrying given the approximately 20% drop in exports to the United States, excluding diamonds and medical drugs, since the first half of 2008,” Export Institute director Avi Hefetz said.
The US is by far Israel’s largest export destination, with six times the purchases of second- placed Great Britain, according to the institute’s data.