TLR 152 – The Case of the Shrinking Share Market

This is a most unusual issue, for a number of reasons. It is devoted entirely to the Israeli financial markets — indeed to a specific topic related to a specific market, namely the dramatic drying-up of trading volume on the equity market over the last year. To identify the problem correctly and see it in both a domestic and international context, it is necessary to present and analyse a lot of data, relating to the various types of securities traded on the Tel Aviv Stock Exchange (TASE), as well as comparative data from around the world.

But that is merely the background. Having identified what the problem is (slumping turnover), where it is apparent (in equities, but not in bonds) and when it began (mid-2011) and became acute (during 2012), I move on to the critical questions – what has caused it and what can be done about it? Various possible causes and ‘culprits’ are considered, including both foreign and domestic players.

This leads to a discussion of a very important development now underway, which has been mentioned in the Israeli press but has not received any serious attention: the effort to persuade MSCI to place casino online the TASE within the European region of its developed market indices. In May 2010, MSCI upgraded Israel and the TASE was moved from ‘emerging market’ to ‘developed market’ status. However, for various seemingly ‘technical’ reasons, this has proved to be a mixed blessing – yet if the Israeli exchange became part of the European region, significant benefits would accrue, not least with regard to the vexed problem of declining liquidity.

The analysis of the MSCI/ TASE issue is something of a scoop for this newsletter – not something that happens very often, or that I aim to achieve, but very nice when it does happen!

But that is only one aspect of the liquidity problem in the equity market – and only one element of the solution. There are several other aspects related to domestic developments, and their relative roles and potential contributions are considered in the final section. All this – including about a dozen charts – has resulted in an issue that covers many pages. However, for anyone involved in the Israeli financial markets, the data and insights should be useful and, in some cases, quite surprising.

For those not active in the markets, I will admit that this is not nail-biting material — but consider this: not everyone in Israel is busy queuing up for a gas mask, cleaning out their basement or stocking up their bomb shelter. Some people are more concerned about equity trading volumes than a possible nuclear Armageddon – which is probably just as well!

 

Contents

E: Financial markets

  1. Trading volumes on the TASE

 

  1. Is the problem Israel-specific?

 

  1. Whodunit? Possible causes and culprits

 

  1. MSCI giveth and MSCI taketh away…and giveth back?

 

  1. Is there a Plan B?

 

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