Jul.20, 2012 | 8:44 AM–One sign of the slump on the Tel Aviv Stock Exchange is the plunge in trading volumes to a new low. Daily turnover has sunk to around just NIS 650 million, a 40% drop from the first six months of the year and 65% under the average in 2010 and 2011.
The tumble reflects sharply declining interest in the stock market from retail investors – presumably the result of negative returns, especially in the past year and a half.
TASE data show that periods of very light trading are usually followed by booms. In 1996, for instance, when the benchmark TA-100 index tumbled 8.5%, average daily trading fell to NIS 104 million, 70% below the 1993 average.
The following year, however, the market recovered 29%. In the dark days of the second intifada, trading dropped off sharply, falling to a NIS 242 million average daily turnover for 2002 and NIS 170 million in early 2003.
Share prices collapsed. But later in 2003 the market staged a dramatic comeback, with the TA-100 jumping 64% on the year and daily turnover returning to NIS 500 million.
From 2005 to 2007, the TASE experienced an unprecedented boom and trading climbed to a daily NIS 2 billion. But investors again took flight in 2008 as fears about the global economic crisis sent the TA-100 down 53%. By early 2009 trading had fallen to NIS 1.1 billion a day.
The market quickly snapped back as the index soared 82% in 2009, recovering nearly the entire loss from the previous year. Trading volumes climbed back to pre-crash levels.
A drop in stock prices and volume is a common cyclical event. The public, hit by losses, gradually flees – withdrawing from stocks and mutual bonds invested in stocks.
The common Yossi hunkers down with secure assets like government bonds and savings deposits. That’s what’s happening today throughout the world, evident in the historically-low yields on government debt.
The fewer players in the market, the less the activity, so there’s higher volatility. Drops in share prices amid light trading tend to be sharper…Read More>>