Haro over stock speculators in Israel

Posted by: 07/12/2023 – 17:53

6 million

Go, there’s nothing to see! The Tel Aviv Stock Exchange on Wednesday, December 6 wanted to put an end to the media flood of possible stock market speculation surrounding the October 7 terrorist attacks in Israel. He rejects the idea that stock marketers could have known about a Hamas attack in advance.

The Tel Aviv Stock Exchange (TASE) has described a study by two US economists as “false and divorced from reality”, which has caused much ink flow since it was published on Monday 4 December. New York University economist Robert J. Jackson Jr. and Columbia University attorney Joshua Mits said they discovered “very unusual” activity by speculators in the days, even weeks, before the attacks. For the war between Israel and Hamas.

Conspiracy Theory?

The two experts indicated in their study that unidentified stock market players made millions of dollars by deciding between late September and early October to bet against Israeli companies listed on the stock exchanges in Tel Aviv and New York.

This shocking study never fails to generate headlines like “Hamas may have gained in the stock market since the October 7 attacks. or “Speculators were forewarned of a planned attack on Israeli soil“.

A media outcry prompted Israeli stock market officials to react. Two days after the study was published, they first promised to “know.” [des conclusions de l’étude, NDLR] An inquiry has been initiated before the work is discredited. “The findings of our review do not raise any concerns about suspicious activity in the stock market in Israel,” The Israel Financial Markets Authority told The Times of Israel.

The Israeli regulator raised a “gross error” by US economists who analyzed transactions in Israeli financial markets in shekels (the Israeli currency), while some company shares were offered only in agrot, the Israeli equivalent of -say cents.

See moreGaza – Israel, a month later: the cost of war

Criticisms were also taken Via British Financial Times. The British Economic Journal is not far from putting the results of the study into the conspiracy theory box. He goes so far as to compare this work to conspiracy theorists’ claims that speculators knew about the September 9, 2001 attacks in the United States.

The two authors of the study acknowledged their error and revised some paragraphs regarding the assumed amount of gains recorded by speculators. In some cases, these profits are divided by 100.

But they stand by their overall conclusions. “We have to recognize that the data they provide looks solid,” assures Antoine Andriani, senior financial analyst at stockbroker XTB.

“Extraordinary” rise in short selling

This study focuses primarily on stock market activity around the MSCI Israel Exchange-Traded Fund (EIS), a financial product indexed to the performance of approximately fifty Israeli companies listed on the New York Stock Exchange and Tel-Aviv. If the latter flies, EIS pays big… and vice versa.

In early October, speculators bet heavily on the impending collapse of the MSCI Israel Exchange-Traded Fund. “Nearly 100% of the transactions registered by the Financial Industry Regulatory Authority on October 2 [Finra – l’autorité de régulation de l’industrie financière] was short selling”, two US economists underline.

These short sales are one of the favorite weapons of speculators. They borrow securities — stocks or other financial products — and then sell them at market prices with a promise to buy them. If the security’s price has fallen in the meantime, these speculators can keep the difference – the profit – between the price they sold it for and the price they bought it back for.

In other words, this sharp increase in EIS-related short selling led some speculators to expect an immediate fall in the stock market in Israel. This is what happened after the Hamas terrorist attack. “A significant number of short-sold positions were liquidated when the stock market reopened in Israel after the weekend of October 7,” notes Antoine Andriani. That is, speculators bought back the bonds at a time when Israeli stocks were in free fall, making substantial profits.

These economists also looked closely at transactions involving specific companies listed on the Tel Aviv Stock Exchange. Here too they noted a sharp increase in speculation around some banks, such as Leumi, for example. The Israel Financial Markets Authority disagrees more strongly, confirming that Leumi Bank has seen no major change in short selling. He added that it would be “irresponsible” to say otherwise. BBC reported.

For Antoine Andreani, speculation against the EIS is “very unusual”. “We see very clearly between the end of summer and the beginning of October the number of short sales that have not been reached since September 2018,” assures this financial market analyst.

legitimate speculation

But does this mean that the speculation is the result of pundits knowing that Hamas is going to attack Israel? “Here we can quickly fall into conspiracy theory,” admits Antoine Andreani.

A significant portion of these speculators may, in fact, have decided quite legitimately that the moment was chosen to bet against the Israeli stock market. “It has been in a downward trend since at least November 2021. The environment generally favors speculative downward moves,” explains Antoine Andriani. After the Hamas attack, these speculators have said they have a chance to take over. A stock market cynicism can pay off big, but can’t foresee the horrors that are about to hit Israel.

We may have to wait until Act II of the two American economists’ work to learn more. They actually admit that they have only incomplete data from FINRA and are “in the process of gathering more” to refine their conclusions. Even with more anger at the Israeli stock market authorities?