Report From Tel Aviv: Israeli Market Plummets in Wake of Violence - TheStreet

(Updated from 11:59 a.m. EDT)

Editor's Note -- Our partners in Israel at

TheMarker.com

have been watching the mood in the Middle East and how investors in that region are reacting to the recent tumult

.

TEL AVIV --

The bloody day in the West Bank town of Ramallah and in Gaza drove stocks down almost across the board.

The

Maof-25

index ended with a 7.97% loss. The

TA-100

index dropped by 7.53% to 469.11 points. The

Tel-Tech

lost a slightly sharper 8.4%.

The

Tel Aviv Stock Exchange

session began with relatively mild drops of about 2%. But when the news hit the floor at about 11:30 in the morning that Israeli soldiers had been lynched by a Palestinian mob in Ramallah, blue-chips immediately dived to a loss of more than 8%, leading the TASE to suspend trade in stocks and derivatives for 45 minutes. When trade resumed at 1:39 p.m., losses were slightly cut to about 7%. But they picked up again toward closing to end with about 8% down.

Two Israeli soldiers were killed and two are in critical condition. In mid-afternoon the Israeli air force bombed Palestinian headquarters in Ramallah and closed off the Palestinian territories, blocking movement between those areas and Israel. The Israel Defense Forces said that the attacks were a limited response to the deaths of the two soldiers. Earlier television news reports said that three soldiers had been murdered and one was in hopeless condition.

Meitav investment house

Noam Kushlevitch

says that events in Ramallah sparked a panic among investors before noon. The phenomenon was evident in the standard deviations in options on the Maof-25 index, which soared to exceed 40% after spending days hovering around 20%. Meanwhile, the general public stampeded, in the form of withdrawing money from mutual funds. They joined foreign investors in a massive selloff, causing the leading indexes to plunge. On the buyers' side, traders speculated today, were mostly providential funds and other institutional investors that decided to take advantage of the panic to gather up stocks at relatively low prices.

Earlier Filing

The following is a snapshot of the situation at 4 Thursday afternoon.

1.

The forex market is reeling from a massive wave of selling by foreign investors. Anybody wondering earlier this week how the shekel was holding on, need wonder no more. It isn't. The shekel is plunging. Dealers are not ruling out the possibility that it will weaken to NIS 4.2 or even NIS 4.3 per dollar, a level not seen for two years.

The effect of the massive purchases of foreign currency is apparently being moderated as hi-tech companies and exporters buy up shekels, taking advantage of the dollar's leap in value to convert them into the local currency - the one they use to pay salaries.

2.

Most of the morning activity on the

Tel Aviv Stock Exchange

was by local investors. But foreign investors woke up (literally: there is an eight-hour time difference between Israel and the United States) during the last hour, and began to sell strong.

During times of crisis, foreign investors don't double-check multiples, revenues or price targets. They don't leaf through analyses. They sell, not wanting to get caught with big quantities of stocks when the Middle East starts to boil. Nobody wants to have to explain in a few weeks' time why he didn't get out when the situation deteriorated.

3.

Earlier this week, the Israeli investment house

Tamir-Fishman

was still trumpeting that business is as usual at the high-tech-startups growth conference it is hosting at the Tel Aviv Hilton Hotel. Back in reality, though, a large number of their guests supposed to come from abroad cancelled. The entire high-tech and venture capital industry has today been reporting cancellations by foreign investors. One high-tech entrepreneur told

TheMarker.com

today that an American he had just recruited as CEO of the startup announced this morning that he wouldn't come to Israel until further notice.

4.

Last week, the high-tech industry was debating how the developing events would affect staffing issues. The industry had been starving for skilled labor to begin with. Suddenly the issue is of even more burning importance. The manager of one major fund said this morning that American investors had asked him to make sure to put key people in portfolio companies on a plane, lest they be drafted by the Israeli army for emergency reserves duty. The manager of a manpower company, Niche, told a

TheMarker.com

writer that if the violence continues, more and more high-tech people would be looking for work abroad. She added that people thinking of going to Israel were shelving their plans.

If there was a ray of light, it was the

Nasdaq's

positive opening today after a week in the red. But the light died rapidly as technology stocks resumed their southward trek. Stay tuned.

For a detailed report, click here.