Disappointment for captain The Tel Aviv Stock Exchange: The global index company MSCI announced on Monday night that it has decided not to include Israel in its leading stock indices in Europe. The decision was made after a survey conducted by the index company among leading asset managers and other stakeholders in the global arena, ie with the largest investment bodies in the world, and the reason that tipped the scales against Israel is the gaps between trading days in Israel and in the current context.
Market participants disagree on the appropriate regional classification of the MSCI Israel Index for their investment processes, in particular due to the current mismatch of trading days between the markets in Israel and Europe. On the subject regarding any significant developments in the market, “explained the European index company.
BSecurities Authority And the Tel Aviv Stock Exchange feared that inMSCI Will make the decision based on the issue of trading days, and try to anticipate a cure for Mecca. Globes learned that about a month and a half ago, the chairman of the Securities Authority, Anat Guetta, sent a letter to the management of MSCI, in which she promised that if the issue of trading days would be the main obstacle, the authority and the stock exchange would take the necessary regulatory steps to adjust trading days. She said similar things about a month ago at a large virtual conference of international investors from the United States. However, a Globes survey shows that the Association of Investment Houses was not aware of such a recent initiative.
Anat Guetta, Chairman of the Securities Authority / Photo: Eyal Yitzhar
The big question is how much the Securities Authority could, even if the move was made with the support of the Tel Aviv Stock Exchange, oblige market players, with an emphasis on local banks, change the trading week, ie cancel trading on Sundays and charge full trading on Fridays – as is customary in Europe Attempts at such a move have come up several times in the past, including about a year and a half ago, in a round of talks that took place under the radar, but to no avail.
The most public attempt to change the trading days in Tel Aviv, which even came up for discussion in the Knesset, took place in the middle of the previous decade. The time has passed and the proposal has even entered the bill to change the structure of ownership on the stock exchange (which ended with its issuance), but in the end it did not materialize, for two main reasons.
Itai Ben Zeev, CEO of the TASE / Photo: Eyal Yitzhar
The first, and more problematic, is the opposition of trade managers, especially banks, to change. The banks opposed the change in trading days, arguing that such a move would cost them a lot of money, and on the other hand would bring little benefit and would not change the stock market situation.
Those who stood on their hind legs against the move over the years were the banks ‘workers’ committees, which claimed that this was a fundamental change in labor relations, contrary to the accepted working week in Israel.
Banks have a significant impact on the volume of trading, and according to market estimates, 90% of the trading of the general public, retail traders, is carried out by the banks (the institutional entities trade mainly through the brokerage departments of the investment houses).
To this must be added the objection of the then chairman of the Knesset’s Finance Committee, Moshe Gafni, who argued that the change would lead to the desecration of Shabbat even if trading ends on Fridays at 14:00, before Shabbat begins.
The rationale behind changing trading days
The chances of changing trading days without the support of the banks are slim, but it is difficult to ignore the advantages and disadvantages inherent in it. First, it is an adjustment of the Israeli market, which is relatively small, to what is happening in global markets, and a brief look at what is happening in Ukraine, for example, or around the US Fed’s interest rate hikes, reveals how much it is affected by them anyway.
Beyond that, trading volumes on Sundays are significantly smaller compared to the turnover in the middle of the week, sometimes up to only 50%, partly because there is no large trading with players from abroad. To the local capital market, trading in Israel on Sundays is almost the only one in the world, and those who want to adapt to macroeconomic events that take place between Friday evening and Monday morning can take advantage of trading in Israel, recording profits or reducing losses on sectors traded in Tel Aviv.
The one most affected by the decision – the stock market stock
For the local capital market, this is a disappointment, because the decision not to allow Israel to join the European benchmark indices prevents international investment bodies from injecting multi-billion dollar investments into the Israeli capital market.
The move was intended to produce increased exposure of Israeli public companies to diverse international investors, whose presence could have created great added value for the local capital market and the Israeli economy as a whole.
“The European index, for example, has investment products that follow it in the amount of about $ 170 billion, and Israel’s share could have reached between 1% and 1.5%, which could have had a huge impact on the Israeli market,” said Adv. D. Ophir Eyal, Director of the International Department and Business Development at the Securities Authority, in an interview with Globes.
On the trading day that took place after the decision was made, it seems that the main one affected by MSCI’s decision is the stock exchange, which as of 14:00 has lost about 10% of its value. It is also possible to note the banks’ index, which fell by more than 2% as of the middle of the trading day, when at least the four largest banks were expected to benefit from Israel’s inclusion in the European index. Beyond that, there was no major impact on MSCI’s decision on the local stock exchange.
“We have not seen dramas in the market because no foreign player will advance and take a position based on the thought that they might add Israel to the index, and he may achieve some percentage return because of that,” explained a source in the capital market. “Often when there is an index update we see nostro players who like to anticipate and change positions in trends that will enter or exit a particular index, thus ensuring themselves a return on the actual update day.”
In the face of those who oppose the inclusion of Israel in the index, there were actually quite a few supporters of the change. These highlighted the fact that many global investors today utilize Europe and Asia as building blocks for their investment in developed markets, and that maintaining the MSCI Israel Index in the Middle East may make international institutional investors less exposed to companies in Israel. In addition, the strong ties that have developed in recent years between Israel’s macroeconomic indicators and those of Europe have been highlighted as a major reason why Israel should be reclassified to Europe.
This is not the first time that MSCI’s decision has led to disappointment in Israel. The previous time a decision regarding Israel cost many companies and investors in the local capital market many billions of dollars. In 2010, the index company changed Israel’s classification from a developing market to a developed market (by the way Israel joined the OECD), a move that significantly reduced Israel’s share of the indices – and turned it into foxes in developing countries. Now, the local capital market has received another disappointing line.
The history and significance of the MSCI decision
● MSCI has decided not to include Israel in the European index, especially in light of the gaps in the trading days on the Tel Aviv Stock Exchange
● The Securities Authority has undertaken to act to change the trading week in Israel if this is the only obstacle
● Past attempts to change trading days have failed due to banks’ opposition to activity on Fridays
● Attempts have been made in the past to oppose former Finance Committee chairman Gafni claiming they will lead to the desecration of Shabbat
● The stock market share in Tel Aviv responded with a sharp decline, as did the banks’ index
● For the local capital market, this is a loss of billions of shekels on the part of foreign investors
● Supporters of the Tel Aviv Stock Exchange’s entry into the European index: Israel’s macroeconomic indices require it