This being Sunday, the Tel-Aviv Stock Exchange will likely end the day trading less than half of what it typically does on a daily average on any other day of the week.
It’s not just because today is the end of summer or that tomorrow is a bank holiday in the U.S. It’s because the only people paying attention to Tel Aviv are in Tel Aviv, and even they are losing interest.
Sunday trading is not all that ails the Tel-Aviv Stock Exchange but it’s the one thing there seems to be agreement on among the banks and brokers who make up the bourse’s membership. The thinking is that IF Tel Aviv aligned the trading week to match Europe and the U.S., Israel would have a better chance of inclusion in the MSCI Europe Index, the unofficial arbiter of many a global asset manager’s investment decision.
The trade-off is that Friday trading would replace Sunday. Friday would not be a full day, ala’ Monday through Thursday, but enough to have some overlap with Europe. The bet that exchange members would be making is said to be worth as much as $2 billion of overseas investment coming onto shores and into our shares.
But regardless of the trading week, the TASE has a bigger issue in how it chooses those companies which represent its benchmark.
Simply put, the TA-25 Index has ceased to be representative of either the Israeli economy or the tenor of the capital markets.
For example, exports account for more than 40% of the country’s gross domestic product, yet 15 of the 25 companies listed in the TA-25 derive most of their sales from within Israel’s borders. And the tech economy? One company, Nice Systems Ltd, is the standard bearer for the sector in the blue chip group.
Then there’s the question of free float, or what percentage of each blue chip company’s shares is in the hands of insiders versus the public. Free float is important to investors because it gives an indication of the company’s stock volatility. Stocks with small free float typically are more volatile because there are only a limited number of shares that can be bought or sold in the event of major trading news. Similarly, companies with larger free floats are generally less volatile.
Institutional investors like to invest in stocks with a large free float; the more, the better. A good rule of thumb, several traders tell me, is a minimum of 50%.
In Tel Aviv, 13 of the 25 blue chips have free float of more than 50%, meaning almost half of the shares of index constituents are off the radar of big investment managers who use that rule. Contrast that to the exchange’s next 25 largest companies, where the majority have free float exceeding 50% and have names that read like a Who’s Who of the tech economy.
Having indexes that are truly representative of an economy is a sign that our market should be taken seriously. Maybe with all of their Sunday free time, the investment community can do something about that.