Israel’s benchmark stock index plunged the most in almost 11 years after Standard & Poor’s lowered the U.S. credit rating and amid concern the widening sovereign debt crisis in Europe will stall global growth.
Israel Discount Bank Ltd. (DSCT), the country’s third-largest lender, skidded 10 percent. Nice Systems Ltd. (NICE) slumped the most since November 2008. All 25 shares in the TA-25 Index tumbled, pushing the gauge down 7 percent, the biggest decline since October 2000, to 1,074.27 at the 4:30 p.m. close in Tel Aviv. The index is near the so-called bear-market territory after retreating 19.9 percent from a record high of 1,341.89 on April 21.
“It could be a turbulent market in the next few weeks,” said Ron Eichel, chief economist and strategist at Meitav Investment House Ltd. in Tel Aviv. “If there’s a storm globally, it’s going to affect Israel, which has very large exports to the U.S. and the eurozone.”
S&P cut the AAA credit rating of the U.S. to AA+ on Aug. 5, while keeping the outlook at “negative.” S&P on Aug. 2 placed Israel’s AAA rating on U.S.-guaranteed sovereign bonds on “CreditWatch.” The European Central Bank left interest rates unchanged on Aug. 4 as economic growth slows and the region’s debt crisis spreads to Italy and Spain.
The Bank of Israel on Aug. 2 cut its economic growth forecasts for this year and next, saying debt reduction plans in developed countries may lead to a global slowdown. The economy will expand 4.8 percent in 2011 and 3.9 percent in 2012, the bank said, lowering its forecasts from 5.2 percent and 4.2 percent, respectively.
Finance Minister Yuval Steinitz yesterday called the downgrade a “warning sign” for Israel’s economy. Supervisor of Banks David Zaken said today the downgrade “underlines the need to be prepared for scenarios that if we talked about them a few years ago, would have seemed impossible.”