Interesting news from Israel’s stock market

Like many of its fellow travellers, the stock market in Tel Aviv has spent the past few months marking time. Whilst the fundamentals are looking good, European economic uncertainty is acting as a restraint.

Yesterday, there was a serious incident on Israel’s border with Lebanon. Combine that with an unusual  rocket attack on Eilat the previous day, and you would expect investors to get jittery. The fact is that after an initial dip of 1%, the index closed the day’s trading marginally down.

To paraphrase a previous CNBC comment about Israel, it is a country that has discovered a path to economic growth, not because of stability, but despite geopolitical uncertainty.

Israel’s stock market has just released a report for the period covering January – July 2010. There are over 600 listed companies. The value of bonds and equities together is close to US$400 billion.

What sparked my interest was the level of daily trading. It has now reached US$567 million, 3% above the previous high of 2008 and many miles away from the troughs of 2009.

That is a true sign of long term confidence in the Israeli economy.

Coping with war – the Israeli model

Hamas’s war with Israel directly impinges on the lives of 0.5m civilians. Add in battalions of regular soldiers and reservists, stationed in the region. And more are being rushed to secure the north, against a possible reprisal attack from Hizbollah in Lebanon. Maybe 15% of the population has been sucked in to the horrific scenario.

In Gaza, the makeshift Hamas society, based on smuggling and repression, is imploding under the weight of Israel’s attacks. Many basic services are not functioning with the leadership suspected of hiding in mosques and hospitals.

Israel offers a different approach, where as far as possible life goes on normally.

What do I mean? Take a large food distribution company, which I visited on Thursday. Located near the port of Ashdod, where many rockets have landed this week, its 550 workers are continuing to clock in. The company is also making a special effort to distribute special parcels to families directly in the line of fire. And that is no one-off story.

In Tel Aviv, the stock market has ticked along, actually rising 5% this week despite the hostilities. I have heard of at least one finance house organising deliveries for citizens living under the Kassams sent from Gaza.

Ashkelon’s Sapir Institute for Higher Learning has been forced to close its classrooms. Some of the students have put together an ad-hoc local radio station, broadcasting mesages of support to affected communities.

It is self-help. It is mutual respect.  A Druse soldier was killed by a rocket and many went to the funeral. The city of Jerusalem has organised for whole families from the south to be hosted locally for a few days. And so the list goes on.

Hamas has deliberately refused any partnership with Israel’s way of life. Israel’s society is now 60 years old. It has emerged out of the depths of struggle and human despair, yet evolved, for all its faults, in to a showcase of pluralism.

The war against Hamas is not just aimed at protecting Israel’s special jewel. The conduct of the home front during the war helps to show off its success.

Israel’s stock market – what next?

Take a world credit crunch. Add in the local holiday season. Mix in a relatively high rate of interest. And what would you expect the Tel Aviv stock market to move?

Well, you are unlikely to expect it to jump 5%, which is exactly what it did today, Sunday.

The reasons are not clear. it has emerged that the pension funds are actively buying. And again, I stress that the fundamentals of the economy are sound – eg, unemployment has yet to rise. There is a tourist boom, which is likely to continue into 2009.

I have spent the past few days in shopping malls with my kids. Parking was a problem, as people flocked to empty their wallets in the shops. Yesterday, we went touring in the lower Galilee region, visiting a herbs and spices centre. We left at nightfall and the crowds were still flocking in.

Yes, the government has revised downwards its growth forecast for 2009. And “Israel is likely to face a credit crunch in 2009,” a senior regulator predicts, as reported in Globes newspaper.

The truth is that so far Israel is coping well. The authorities have reacted calmly and solidly. The internal economy is operating solidly. The country is prepared to face any winter storms, even if they are not just full of pretty white snows.