The Tel Aviv Stock Exchange is close to breaking through a psychological barrier. The Tel Aviv 25 stock price index (the most closely watched index, covering the 25 stocks with the highest market value), which was affected -- negatively -- only briefly by the outbreak of war in July 2006, has been reaching new peaks ever since, and now, in early February 2007, is less than 3% below the unprecedented level of 1000.

The ongoing boom in Israeli stock prices -- now in its fourth year -- is a reflection of the growth process in the Israeli economy that began in mid-2003. Since stock prices are generally considered to be a leading indicator -- that is, they give advance warning of macro-economic developments, the accelerated increase from mid-January 2007 and the approach to the level of 1000 seems to indicate that economic growth in Israel will continue in 2007. And indeed, forecasts point to this happening, with expected Israeli economic growth this year a part of the optimistic picture for the global economy as a whole.

It is worth noting that in 2006, the increase in stock prices was less than in the previous two years: the Tel Aviv 25 index increased last year by "only" 12.4%, compared to 34.3% in 2005 and 22.6% in 2004. This slowdown in stock price increases took place despite the fact that financial investment from abroad (mostly in stocks) jumped considerably -- to $8 billion from $4.7 billion in 2005, as part of the overall dramatic increase in foreign investment in Israel last year. In other words, foreign investors seem to be more optimistic than Israeli investors about the future of the Israeli economy in general and the Israeli stock exchange in particular (a similar dichotomy between foreign and Israeli investors in 2006 also characterizes venture capital investment in Israeli hi-tech companies in 2006: the major part of the increase in this investment last year was by foreign VC funds).

Data have not yet been published on foreign financial investment in early 2007, so we have no means of knowing whether a continuing increase in this investment was a factor behind the positive stock price developments in January-February 2007. In any event, if the Tel Aviv 25 index soon breaks through the psychological level of 1000, this in itself could work magic for continuing prosperity in the Israel stock market.

Provided as a service to AICC by I-Biz -- Israel Business Information Services Ltd. For more information on I-Biz information services, visit www.i-biz.co.il or contact info@i-biz.co.il.

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