"The price level of leading shares is currently at the upper limit of the economic range, while the price level of many shares on the Karam index and the parallel list cannot be explained on an economic basis". It was with this sentence, written by Economic Models headed by Yaakov Sheinin at the end of 1993, and published by "Globes" on February 7, 1994, that the market started to collapse.
Even today, five years later, Sheinin prophecies no good for the stock market: "As long as the interest rate is not reduced, or is not expected to be reduced, I don’t think there is any chance of the stock market’s making a forward breakthrough". Sheinin reached this conclusion despite the fact that, in complete contrast to what he said back in 1993, he considers the stock market today to be economically attractive.
What Sheinin actually deplores is that the market is trading at 10% below economic value, and that even a 400 point index can be considered reasonable. He does, nevertheless, recommend investing in the market, because of the combination of macro-economic conditions with the Israeli market’s fundamental problem, namely the pension funds arrangement.
"The crisis is not over yet. At the time, there was a much sharper downslide than necessary, and shares today can be seen to be trading at very attractive prices. The average p/e ratio in Israel is 13, compared with twice as much in New York; this is the exact reverse of the picture we witnessed in 1994. At that time, Israel was trading at a p/e ratio of close on 30, compared to 15 in New York. The position today, it seems, is that the prices of the major companies are lower than their economic value, even significantly lower".
Even so, the Israeli market is still in crisis, and Sheinin blames this on the high interest rate and on the fact that long term savings (pension) moneys are not reaching the market. "As long as there is no basis for demand reaching the market, and as long as there is a risk-free real interest rate of 5.5%, our discussion is merely theoretical; the capital market cannot function given such conditions".
While praising the companies currently trading on the Tel Aviv Stock Exchange, Sheinin says this will not cause their share prices to rise. "The economy is strong; and, according to any criterion, the leading companies in the market have a sound economic basis, and are attractive for long-term investment. But, on the other hand, there are our macro-economic problems that are constantly mounting.
In a five-year retrospect Sheinin admits that, on the personal level, he only gained from all this publicity, even if the initial stage was not easy. "At the time, it was not pleasant, I had to have a bodyguard, I was the man who toppled the TASE. But today, nobody accuses me any longer of toppling the market, and everybody understands that the collapse was due to the unreasonable prices that prevailed at the time".
Published by Israel's Business Arena February 8, 1999