Navigating the Tel Aviv stock market: challenges and opportunities amidst turbulent times

by | Oct 29, 2023 | Portfolio Management | 0 comments

The Tel Aviv Stock Exchange (TASE) has been in the spotlight recently, facing a series of challenges and fluctuations that have left investors both in Israel and abroad pondering their financial decisions. The most recent drop in the Tel Aviv 35 Index has taken it back to levels last seen in August 2015, with a 0% return over eight years. In comparison, the American S&P 500 index has surged by an impressive 106% during the same period. Many are wondering if it’s time to give up on Israeli investments and shift their savings abroad.

However, as we delve deeper into the dynamics of the TASE and its historical performance, it becomes clear that the recent figures don’t tell the whole story. To put things in perspective, one must recall the 2008 global financial crisis, which sent the American stock market tumbling by 50% – to the levels not seen since 1997. However, once the recovery began, it led to an astonishing climb of 600% during the decade that followed. This illustrates that stock market performance can be cyclical, with periods of decline often followed by significant rebounds.

The past year has undoubtedly presented a formidable challenge for investors in Tel Aviv. Geopolitical tensions, coupled with the unsettling uncertainty generated by the government’s decision to reform the judiciary, created a turbulent environment. These factors collectively contributed to the underperformance of the major TA-35 index, which had previously managed to produce only modest single-digit gains. However, the landscape changed dramatically following the tragic events of October 7 and the subsequent outbreak of war, as the index plummeted by over 12.32%.

However, a broader perspective reveals that, prior to the recent turmoil, a period between 2021-22, the performance of the TASE was stronger compared to Wall Street, thanks to a significant presence of finance and real estate stocks in the leading index. From the beginning of 2021 until the start of the war in the south, the Tel Aviv 35 index lagged behind the S&P 500, primarily due to the surge in technology stocks on Wall Street, which wasn’t mirrored in Tel Aviv.

Currently, the local market is reacting with panic to the ongoing war, and it’s expected that companies traded on the local stock exchange will be affected for one to two quarters, or possibly even a full year. Banks are expected to make substantial provisions for credit losses, with rating agencies already putting their ratings under negative review. However, it’s important to recognize that the Israeli economy has a history of resilience. Over time, it’s likely that both public companies and profits will recover, leading to a renewed increase in stock prices.

From a fundamental perspective, the Tel Aviv stock market is currently “cheap” with a profit multiplier of 12 in the Tel Aviv 35 Index, compared to an average multiplier of around 16. Theoretically, the index should produce an 8.3% annual return under this multiplier. In other words, the market has returned to levels last seen eight years ago and appears attractively priced.

History teaches us to maintain optimism in the face of current challenges. Israel has persevered through various crises, including wars, intifadas, and economic downturns, as has the world. Economic markets have a tendency to correct and rebound over time, making past events challenging to spot on historical charts. It’s plausible that the same resilience will shine through in the current circumstances.

For investors considering the Tel Aviv Stock Exchange, it’s crucial to resist the urge to time the market. While short-term bets might seem tempting, it’s impossible to predict the exact moment when markets will turn. Experienced investment managers consistently advise against trying to time the markets, emphasizing the importance of long-term trends driven by economic fundamentals.

Furthermore, investors should take advantage of the power of diversification, spreading their investments across various assets and regions. Rather than abandoning the local stock market altogether, consider diversifying into international markets, as well as government or bank bonds for a more balanced investment portfolio.

In conclusion, while the Tel Aviv Stock Exchange faces challenges at the moment, history shows that markets can recover and thrive even after the most significant setbacks. Investors should stay informed, avoid panic-driven decisions, and take a long-term approach to their investments. By staying diversified and resilient, they can navigate the current turbulence and position themselves for future opportunities in the Israeli and global markets.


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