Bulls on parade

The view from Shlomo Maoz’s 29th floor office,
overlooking Tel Aviv’s financial district and the calm
blue waters of the Mediterranean, is an impressive
one, a confident one. It is, in a word, a view of

Indeed, it is five straight years of strong economic
growth that Maoz, chief economist of the investment
firm Excellence Nessuah, has agreed to discuss. By all
accounts, heady times have arrived for the country’s
economy, and Maoz is eager to explain how they got

But his cellphone’s shrill ring keeps breaking the

‘Shlomo,’ cries a client, the editor of one of the
country’s highbrow magazines, ‘the markets are
plummeting. What should we do?’ The same refrain comes
pouring through the speaker as, one after another,
clients, brokers and analysts seek guidance through a
gathering storm in the world’s financial markets.

‘Well,’ he says with a sigh, ‘we’ve got a panic.’
Tokyo, Hong Kong, Mumbai – all across Asia, markets
are heading down with some of their biggest single-day
losses in years. The same goes for Europe and South
America. There’s hardly a major stock market in the
world that posts a gain.

Israel’s sole stock exchange follows suit. On one
especially gloomy day, 98 of the stocks in the Tel
Aviv 100 index close at a loss. The declines continue
throughout this week, with all the major news media
devoting significant time and space to what has
suddenly become a very worrying trend.

A total collapse, this isn’t. Just as quickly as they
fall, the Asian markets rise again. In the West,
markets tumble a bit further, though at a slower rate.
Uncertainty reigns, however, as no one seems to know
how bad things will get, or how long the downturn will

Now rewind to the close of 2007 and it’s no wonder
Bill Gates, Warren Buffett and Donald Trump have been
sweet-talking Israel lately. That the country’s
economy has been humming along is the worst-kept
secret in the world’s business circles.

Consider: Exports in the past year were nearly double
what they were only five years ago. The shekel is at
its strongest in a decade, now hovering around 3.7 to
the dollar. Unemployment is at its lowest in a decade,
dropping to 6.6 percent at the end of 2007. The
country just registered its fourth straight year of at
least 5% growth, a handsome rate by all accounts.

It would be impressive enough for a stable economy to
brush off a fierce intifada and a painful war in
Lebanon, as Israel’s has. For a country that has had
as bumpy a ride as this one, though, it’s nothing less
than a stunning turnaround.

PROGRESS HAS been so great and so swift that observers
would be excused for confusing the Tel Aviv Stock
Exchange with a runaway train.

This week the exchange announced a major new agreement
with the French stock exchange that should increase
volume on both. That joins formal agreements signed in
the past year with New York’s NASDAQ and the London
Stock Exchange, two of the world’s biggest. Another
agreement, with a major Asian market, is in the works.
Tel Aviv’s sudden popularity is no mystery for a
market fresh on the heels of a 31 percent rise in its
benchmark index for 2007. For the four years 2004
through 2007, the TA-25 rose 175% – more than four
times the figure for New York’s markets for that time
frame and only slightly behind the unparalleled
performance of the less stable emerging markets.

With all this activity, you’d expect to find the TASE
bustling with the frantic shouts of traders trying
desperately to fill their customers’ orders. And
indeed, a visit to the exchange on Rehov Ahad Ha’am in
Tel Aviv’s financial district reveals a trading floor
filled with the cacophony familiar to market watchers
around the world. Only now, that overwhelming din is
supplied by the soundtrack to the three-minute film
shown at the exchange’s visitors center, the modern
but sleepy inheritor of the old-time trading floors.
There hasn’t been any paper flying in the pit of the
TASE for almost 10 years now, the last such activity
closing down in 1999 as the exchange completed its
turnover to fully computerized trading.

The architect of that revolution was Esther Levanon,
who came to the exchange in January 1986 after a dozen
years with the Shin Bet, having set up and run the
security agency’s computer department after her PhD
work at the Technion.

‘At the time there were several dozen traders
delivering orders, with battalions of typists
inputting the data,’ she recalls.

Now, says Levanon, currently CEO of the exchange, more
than half the employees of the exchange work to
operate and maintain the computer system. That
computerization has transformed the TASE into one of
the most advanced stock markets in the world.

‘If anything, we’re too fast,’ Levanon says with a
grin. ‘Processes that take three days to complete in
New York, we do in a day.’ Speed is necessary, she
says, because ‘things change so quickly today. A
modern exchange needs to listen to the market, to
follow the trends, to be flexible.’

One way in which the TASE has done this is through the
offering of exchange traded funds (ETFs), a blend of
stocks and managed funds that have been gaining a
bigger and bigger share of investments since New
York’s S&P 500 index first became tradable as an ETF
in the 1990s. Today, 20% of the TASE’s trading volume
is in these instruments.

Last February, Tel Aviv began to market the Tel-Bond
20, an index of the top 20 corporate bonds. This
month, it is introducing the Tel-Bond 40 (the leading
40 corporate bonds after the top 20), and it will soon
offer the Tel- Bond 60 as a composite of these bonds.

In 2007, Levanon notes, firms raised NIS 100 billion
through the sale of corporate bonds on the TASE.

AFTER AN initial spurt of growth in the early days of
the state, the country’s economy ground to a near
standstill in the 1970s. In the early 1980s, following
a crisis in the stock market that forced the
government to take over the country’s four largest
banks, annual inflation spun out of control to a
crushing 300%. Reforms put in place in 1985 had,
within 10 years, brought that figure down to a more
manageable 10%.

Further reforms based on the recommendations of the
Bachar Commission, passed in the Knesset in 2005 by
then- finance minister Binyamin Netanyahu, have opened
up the country’s financial markets in ways that make
investing cheaper, easier and more transparent.

‘In all, there have been significant reforms in the
labor market, in the stock market, in the
communications market, in higher education, in
transportation – you name it,’ says Maoz. ‘It has
taken years for these reforms to take effect, but now
they are really being felt.’

Still, Maoz says, ‘all this wasn’t enough. The budget
was still too large. Netanyahu cut the budget and
forced many of those who were on the public dole to go
out and work. Since then we have seen a higher rate of
participation in the workforce, especially among
women. We have also seen an increase in the hours of
work among women.’

Together with the contributions of more than a million
immigrants from the former Soviet Union, this has
translated into higher production. Even with tax cuts
in the past few years, Maoz notes, the government’s
collection of tax income has increased because people
are producing more and buying more than they did in
the past.

These factors have given local companies the
opportunity to grow. But it is a certain mind-set that
has led some firms to seize that opportunity more than
others, says Neil Cohen of Israel Seed Partners.

‘Growth in Israel over the past few years is a
testament to Israeli entrepreneurship, to the
revolution created in the past 10 years by [tycoons]
like Lev Leviev, Yitzhak Tshuva, Nochi Dankner and the
Ofer brothers,’ Cohen says.

‘It’s also a byproduct of hi-tech firms and real
estate firms being aggressive about developing markets
abroad. Because the local market is small, and because
their products and services are applicable to much
larger markets abroad, these companies have gone
overseas looking for new mountains to climb.’

Climb they have, whether it be hi-tech firms like
Check Point going from start-up David to software
Goliath, or real estate developers ‘taking over’
Manhattan and European cities.

It’s been a hell of a run, to be sure. But it may be

‘The US and Western Europe are facing an economic
slowdown that is the result of very cheap credit,’
Cohen notes. ‘When everybody gorged themselves on that
very cheap credit, it led to asset price inflation,
and now the music has stopped. It’s going to have an
effect on economic growth not only in the US and
Western Europe, but around the world. And no economy
is going to be immune from that.

‘I don’t know exactly how much that is going to effect
growth in Israel, but much of the rise in our stock
market over the past five years has been the result of
Israeli companies being successful abroad. If the
markets that we sell to, and the markets where we have
assets, slow down, that’s going to have an impact on
the profit growth of Israeli companies.’

TEL AVIV’S stock exchange has surged as the country’s
economy has expanded. That in turn has spurred
interest from foreign investors – who, Levanon says,
now account for more than a quarter of the funds
invested here. They are attracted, she says, to the
efficiency, ease and transparency of the market, but
also to its newfound maturity and stability.

‘When our average daily trading volume had grown to
NIS 100 million,’ Levanon recalls, ‘large
institutional investors from abroad would say, ‘Hey,
it’s wonderful that things are going well over there,
but I can’t invest because any move I would make would
dramatically alter the market.’ Now that the average
trading volume is NIS 2 billion per day, that isn’t a
problem anymore.’

Ironically, one of the keys to that growth has been
the number of local companies traded on foreign
exchanges. By adopting a dual listing law, Israel gets
to ‘keep’ local companies here by allowing them to
raise money on foreign exchanges without forcing them
to give up their place on the TASE.

Some 70 Israeli companies are listed on the NASDAQ
exchange, for example, and 70% of them maintain their
listing at home as well. The London Stock Exchange
hosts more than 30 Israeli companies that are also
listed on the TASE.

‘Dual listing is a ‘win-win-win’ situation,’ says
Levanon. ‘It’s good for the customer, who has more
choices; it’s good for Israeli companies, which can
raise more money; and it’s good for our exchange,
which retains strong companies.’

Dual listing does not make sense for all of Tel Aviv’s
nearly 650 companies, though.

‘Take Strauss-Elite for example,’ Levanon says. ‘The
local market knows the company, while others from
abroad don’t know it as well. So only the local market
can give it an accurate price.

‘Hi-tech companies, on the other hand, are different
because their products aren’t limited to the local
market; they’re meant for a more global market.
Therefore it makes sense for them to look abroad to
raise funds. We don’t feel as if it’s an act of
betrayal for Israeli companies to raise money abroad.’
Still, Levanon is leading the TASE away from dual
listings and toward ‘mutual recognition,’ as in the
latest agreement with France. Companies from either
country will be allowed to list securities for trade
on the other country’s stock market, as their
prospectuses will now be recognized. Since differences
in the way that various countries evaluate companies’
business paperwork present a major impediment to such
activity, the move is expected to encourage

‘The agreement will provide Israeli companies with
international exposure, widen their investor base,
enable foreign companies to register for trade on the
Tel Aviv Stock Exchange and diversify investment
opportunities,’ the Israel Securities Authority said
in a statement marking the first mutual recognition
deal with a foreign authority.

The agreement brings Israel closer to the European
Union. More than that, though, it is another step
forward from the small, noisy trading pit to a place
of prominence on the world’s financial stage.

‘Globalization,’ says Levanon, ‘is the future of the

(BOX #1) Can the growth engine keep humming?

‘I think most investors are cautious about the
prospects of stock market returns around the world in
2008,’ says Neil Cohen of Israel Seed Partners. ‘We’ve
seen a rocky start to the year and there’s no reason
to believe that that isn’t a fairly good indicator as
to how this year is going to play out. I don’t think
anyone expects the kind of performance in 2008 that
we’ve seen in 2007 and 2006, whether in Israel or in
the main stock markets.’

The answer, says Cohen, is Asia.

Looking for an example of the tantalizing potential of
the region? Try the 97% rise on Singapore’s stock
exchange in 2007.

‘It’s becoming increasingly apparent, on a number of
levels,’ Cohen says, ‘that Asia and the oil-producing
world generally (including Russia and the Gulf States)
are generating amazing growth. When the heads of the
major American banks get into trouble, they are flying
east for help – to Singapore, to China, to Dubai and
to Abu Dhabi. That’s where an increasing proportion of
economic wealth and power are being concentrated.

‘Where many investors have thought primarily in terms
of the US as the bellwether of their investing,
investors need to think more and more about how they
can get exposure to the wealth and growth that is
happening in Asia.’

Shlomo Maoz, chief economist at Excellence Nessuah,
also foresees trouble ahead for 2008, but his
suggested remedy is to continue on the reform path. He
would like to see the government make further inroads
in the Arab and haredi communities, whose
participation in the workforce remains low, and to
help poorer Israelis enjoy the fruits of economic

‘We have seen the weaker population of the Tel Aviv
area benefit from the growth in the economy, but not
others,’ says Maoz. ‘Why? Because there is
infrastructure in the center of the country. Without
investment in infrastructure for those in the
periphery, they will not have access to jobs or to
higher education, or to housing near jobs and higher

Maoz also says that resources should be allocated to
early childhood education, to help weaker segments of
the population develop the skills to compete in the
job market down the road.

‘The government heavily subsidizes university
education, but it doesn’t pay for public schooling for
three-year-olds. Yet studies show that many children,
without such schooling at the age of three, will never
make it to university,’ he says. ‘Why should my
daughter get a subsidy to go to university in Tel
Aviv, while children in Sderot are not given the tools
to reach higher education?’

Along those lines, Maoz suggests a reversal in the
government’s recent habit of cutting funds for
vocational training. Such training, he says, is a key
to helping Arabs and haredim participate in the
workforce by working from home, either in
computer-related fields or in cottage industries.

Furthermore, he points out, blue-collar workers suffer
from the government’s policy of allowing armies of
foreign workers into the country to perform manual

‘It is fashionable to scream ‘Free markets! Open
competition!” says Maoz, who admittedly is far from
an anti-capitalist himself. ‘Well, if you really
believe in free markets and open competition, you
should be importing foreigners to compete for
high-paying jobs. But you don’t see that, do you? No,
we want to preserve those jobs for our own people. So
why is it that the government allows 240,000
foreigners to take jobs from those Israelis who can’t
work as engineers and computer programmers? Why do we
leave them with working for the army as their only
employment option?’

The theme for Maoz, then, is this: Smart government
policies got the country out of financial trouble in
the past, and more smart government policies will keep
it out of financial trouble in the future.

In the meantime, it’s anyone’s guess as to how much
longer our economic strength will continue to grow.

(BOX #2) A brave new world for investors

In other times, the whiplash in global markets over
the past two weeks would be enough to keep all the
amateur investors off the high-stakes roller coaster
for awhile, pulling their money out of the financial
markets and socking it away under their mattresses.
But it isn’t – at least not here where, aside from the
alarm from business journalists, it’s business as

At one of Bank Hapoalim’s main, downtown Jerusalem
branches, a plain-looking man in his mid-50s is asking
a clerk dozens of questions: How does the interest
rate in this fund compare to that one? What would I
end up with in this many years? What if I choose a
fund tied to the dollar? Or the consumer price index?
Would I be better off moving my money to a different
pension fund? How about a mutual fund? Stocks? Bonds?

The gentleman is not alone. A young man just out of
university is asking the clerk in the next booth about
ways to invest a portion of the salary from his first
job. Several more people seated in the lobby are
waiting their turn to ask similar questions. None is a
tycoon. But all are investors.

Extensive news coverage and the explosion of interest
in investment options is evidence of a major change in
the way most Israelis relate to their money. After the
rationing of the 1950s, the upheaval of major wars in
the 1960s and 1970s, the hyperinflation crisis of the
1980s and the hi-tech delirium of the 1990s, a popular
culture of investing is beginning to take root here.

‘Before, in times of uncertainty, people sought out
‘solid’ investments, and ones they could understand.
If they had some money and wanted to protect it from
inflation, they would look to buy property, or to buy
dollars,’ says Eliezer Gluckman, a personal banking
specialist who has worked at the bank for 32 years.

‘Now, there are no such ‘solid’ investments. Rather,
there is a tremendous variety of options available,
from the stock market in Tel Aviv to markets in London
and China. Every day, people – not just the wealthy,
but all kinds of ‘regular’ people – come in here to
ask about them.’

‘Israel has changed a lot in the last three years,’
Neil Cohen, of Israel Seed Partners, agrees. ‘The
markets have become much more liquid; there’s a lot
more capital around; there are a lot more products
being offered to people, and the products that are
being offered to them are much more sophisticated than
the ones that were being offered to them before.’

Thanks to recent reforms in the banking sector, Cohen
notes, ‘Whereas the banks once dominated in the
provision of both investment products and investment
advice, today that market is now in the hands of more
independent and increasingly more aggressive players
who are offering increasingly sophisticated, sometimes
complex products.’

You’ll find no greater sign of just how much
investments have penetrated the public consciousness
than the ones on the sides of buses around the
country. There, in the spot that once was dominated by
political slogans and schools offering lessons for
psychometric exams, now hang banners offering tempting
returns on financial instruments once familiar only to
the caviar crowd.

‘Three years ago, people weren’t getting calls at home
from mutual fund companies or insurance companies
pitching products,’ Cohen says. ‘The market was much
more sedate. It was an easy club dominated by the
larger banks. It’s much more consumer-oriented now.’

Technology also plays a part, as Israelis have an
easier time investing now than they ever did before:
Even small sums can be invested in a fairly wide array
of instruments in a matter of seconds, at a relatively
low cost, through the banks’ Web sites.

Not that this means that every blue-collar investor
has a firm grasp of what his money is doing in this
fund or that one. The prevalence of options, Cohen
says, just means that ‘both the opportunities and the
risks for investors have increased. It’s a brave new
world for investors these days.’

Is it a promising world, though, even if the latest
stock market scare is destined to continue?

As Esther Levanon, CEO of the Tel Aviv Stock Exchange,
notes, ‘A stock exchange has problems when too few
people are invested in it… In fact,’ she says,
‘there’s only one other situation that is problematic
for an exchange, and that’s when too many people are
invested in. When everyone is into stocks, it can get

(BOX #3) The lure of easy money

In the long run, financial advisers point out,
investing in the stock market is the ‘safest’ move, as
returns from stock purchases are almost always higher
over time than savings or bond purchases.

It’s the short run that’s the killer.

Every year, there’s a brisk business in new books and
newsletter subscriptions full of promises to turn
stock market dabblers into overnight millionaires with
this secret formula or that one. The lure of easy
money, apparently, is just too powerful for some to
resist. No matter how many times they fail to manage
‘the big swing,’ some investors keep buying and
selling compulsively, certain that their fortune lies
just around the next opening bell.

Trading stocks, experts say, can easily become an

‘There may not be much awareness in this country of
trading addiction as a gambling problem, because
investing is legal and socially acceptable,’ says Dr.
Pinhas Dannon, a senior lecturer on addiction at Tel
Aviv University’s Sackler Faculty of Medicine. ‘But I
know for a fact that it is a problem, and a large
problem in Israel.’

Orit Dror, head of the Efshar Center for Victims of
Alcohol and Gambling Abuse in Tel Aviv, confirms this.
‘People come to us quite often, and unfortunately they
come once it’s too late,’ she says. ‘These are people
who accept that they have a problem only after they
have lost a lot of money, or even their property.
Often, their family finds out about the addiction too

Trading addiction, says Dannon, tends to affect men
over 30 who have sizable liquid assets. Other than
that, though, the addiction is like any other.

‘When I first started to work on this, in the 1990s, I
stumbled upon a group that was gambling on the stock
market. We would find them sitting in front of
computer screens in banks all day long. Even more than
the money, they were in it for the thrill. They needed
the excitement.’

The sums involved may be different but, Dannon says,
trading addiction is just like ‘all other manner of
gambling. For many older people, shopping channels act
the same way. Of course, we already recognize
cellphone and the Internet addiction. These things can
be worse than more conventional addictions because
they are interactive.’

An even greater danger, he says, lurks in the state-
run lottery. In fact, by running the Mifal Hapayis
lottery commission, the government has a hand in
encouraging addictive behavior.

‘It’s against the law to advertise addictive items,
such as cigarettes and alcohol, and for good reason.
Yet Mifal Hapayis can freely advertise its scratch
cards and sports gambling products. Why?

‘It’s all about selling the dream of winning in a
moment. There’s no big difference between this and
gambling in the stock market – except that, with the
lottery, your chances of winning are actually much
lower than your chances of making a profit in the
stock market.’

As for the stock market, those compelled to try their
luck, but who don’t have the cash to bankroll a
portfolio, can try one of several virtual stock market
games available on-line. Doing so could even help the
local economy: At least one local company runs an
on-line stock market game in which, for only a few
dollars, ‘investors’ can win real money for
make-believe stock picks.

If that, too, becomes an addiction, there is always

‘The first step to recovery,’ says Dror, ‘is to admit
there is a problem.’

The Efshar Center can be reached at (03) 673-3228.

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