Since the U.S.-Iran agreement, the Tel Aviv Stock Exchange has fallen for three straight sessions, with losses reaching as much as 6%. While markets elsewhere have turned sharply positive, Tel Aviv ended last week down 1.9% and was the only Western exchange in the red, according to Investing data. Globally, it recorded the steepest weekly decline, with only Russia, China, Vietnam and Brazil also posting losses. By contrast, Wall Street rose, with the S&P 500 up more than 3% and the Nasdaq nearly 5%.
Or Poria, chairman of Poria Finance, said the key story of the week is the weak Israeli market, which is trading almost completely detached from the global trend. He said the declines are concentrated in stocks tied to the local economy, especially banks, insurance and real estate, as well as traditional and renewable energy indexes hurt by lower oil and gas prices, plus defense shares. In his view, investors are pricing in a scenario that looks like only a limited diplomatic win for Israel, after a period when the market reflected unusually high optimism. “In other words, a diplomatic loss meets pricing for a complete victory,” he said.
Over the past year, however, Tel Aviv had been one of the world’s strongest markets, rising more than 50% in the last year and about 130% in three years, compared with 35% for the Nasdaq and 25% for the S&P 500. Oded Mekler of IBI said investors had expected stronger ties with Saudi Arabia and the wider Middle East, better relations with the United States, and a weaker Iran. Instead, he said, the current deal suggests Saudi Arabia and Qatar are moving away from Israel, and that Trump and the U.S. are also distancing themselves.
Ronen Menachem of Mizrahi Tefahot said the global reaction is different because the reopening of the Strait of Hormuz and the end of the energy shock are reducing oil and gas prices, which should ease inflation and support sentiment abroad. In Israel, he said, the transmission from global energy prices to consumer prices is weaker because of domestic natural gas and the tax component in fuel prices, while the deal also includes elements that are not good for Israel or remain uncertain. Dan Ellis of the First International Bank said the 9% drop from the April peak is not a crisis, but macro pressures remain, including a 3.8% contraction in first-quarter GDP, a strong shekel hurting exports, and the closure of the Lehavim plant with 600 layoffs. He and others also noted that May’s consumer price index fell 0.3%, more than expected, strengthening views that the Bank of Israel could start cutting rates in July. Even so, market participants said it is still too early to know whether this is a lasting reversal or only the first reaction to the deal.
