We woke up one fine morning to discover that Israel has a lively, effervescent market which, in less than three months, has posted more than a 35% advance. We quickly forgot that, for the past six years, we haven’t had a capital market worthy of the name, a place where companies wanting to raise money can meet investors seeking attractive investments. Trading volumes were very thin, and institutions could do no significant business.
Until, that is, turnovers started to shoot up to levels of over NIS 300 million a day. Major market players can now close sizeable deals. Even the public is showing the first signs of joining the investment circle, either via mutual funds, or through portfolio managers, or directly. Four newly-formed mutual funds, investing in shares, recently came out and raised, between them, more than NIS 100 million.
Companies have also successfully issued shares, although most such issues consisted of the sale of bank shares by the government. Some of the prices at which those shares were sold were even higher than the then market price, showing that investors are prepared to pay high prices for the shares of good companies.
Provident funds are very busy on the market, as are insurance companies and foreign investors. Some people are even calling on the provident funds to increase the proportion of shares in their portfolios to 40%. Not even unencouraging economic indicators such as the decrease in export and the increase in the budget deficit are managing to dampen market players’ euphoria.
Capital market players all agree about the market’s rising trend. They differ, however, as to the desired rate at which share quotations should advance. Some fear that if the market advances too fast and too sharply, the public will be deterred from investing, and without a broad base of investors, the capital market cannot continue to climb and establish itself at those high levels.
Some players began to develop a ‘rare stock market merchandise’ theory, according to which, when the public comes in en masse, there will not be enough merchandise to go round. This means the stock market is too narrowly based and is not offering enough merchandise to satisfy demand. The conclusion is that the advances witnessed to date are nothing compared to the northward drive that lies ahead, and extensive new issues will be called for.
At the moment though, parties at interest do not wish to float their companies on the stock exchange, because share prices, they feel, are too low and must rise significantly before they will go public.
Even after the recent wave of advances, share prices are still not high, and this consensus among players on where the market is headed is thus justifiable. According to analysts’ estimates, prices of second-ranking shares are most attractive, since they have posted much less of an advance than the blue chips. The sharp upturn in oil shares, however, is making people wonder.
Published by Israel's Business Arena May 10, 1999