Tel Aviv and Saudi Arabia stock exchanges were the first ones to open after last week’s New York market plunge and Standard & Poor's cut in the credit rating of the United States government, and they sank by 6 percent.
The sharp drop was expected. Israel’s stock exchange closed Thursday afternoon as New York began a sharp selloff that drove prices down five percent, causing a severe gap between prices in Israel and in New York on dual-traded shares of Israeli companies. Shares gained slightly on Friday in roller-coaster trading.
The gap alone was enough to drive the popular Tel Aviv-25 index down by more than 5 percent, but the cut in the credit rating spilled oil on the fire, and the indices in Tel Aviv midday in Israel were down between 6 and 8 percent.
The market in Saudi Arabia opened on Saturday and plunged 5.5 percent.
The Tel Aviv exchanges suspended operations for more than half an hour Sunday morning after an initial drop of six percent set off an automatic halt in trading to give traders time to get their bearings. The market recovered a significant part of its losses before the suspension but dropped again after trading was resumed.
A greater fear in Tel Aviv is a worse version of the old adage that when the United States coughs, Israel catches a cold. If a “”double-dip” recession hits the United States, its “cold” could cause pneumonia in Israel.
With Israeli exports making up approximately 40 percent of the country’s gross domestic product, a recession overseas would cut short Israel’s economic growth and stability, which has outdistanced most of the Western world the past several years.
Many analysts think that no matter what happens to the economies, Israel’s high-tech industry will be in good shape. After the United States and Canada, Israel has the highest number of companies on the NASDAQ exchange. Nice and Elbit are two companies that analysts insist will not suffer in the near-term because of bookings for the next several months.