Israeli Election Outcome's Potential Impact on Economy and Markets

The upcoming Israeli elections could significantly influence the stock market, the shekel's exchange rate, interest rates, and asset prices, although opinions on the extent of this impact vary. Some experts, like Avner Stepak, chairman of Meitav, believe that global economic factors and business sector activity have a greater short-term effect than the government's composition. He suggests any market euphoria following a preferred election outcome would likely last only a few days.

Conversely, others argue that the government's decisions on the budget, taxation, priorities, and regulation directly affect public companies and individual finances. The key question is how much of this potential impact is already priced into the market and what happens if the election results deviate from investor expectations. Bizportal has been focusing on the economic aspects of the election campaign, featuring discussions with candidates like Naftali Bennett on employment and housing, and Avigdor Lieberman on taxation and deficit management.

A new study by IBI suggests a significant impact from the election results, potentially leading to a market repricing. A change in government could lower risk premiums and strengthen the shekel, supporting further interest rate cuts, possibly to 3%. Conversely, maintaining the current coalition might lead to a weaker shekel, increased inflation expectations, and a higher risk premium, potentially forcing the Bank of Israel to raise interest rates by 0.5%-1%.

Regardless of the election outcome, the next government will face fiscal challenges, including a rising debt-to-GDP ratio and sustained high defense spending. Addressing these issues will require deficit reduction and budget adjustments, whether through spending cuts or tax increases. The market's confidence in the government's ability to manage these challenges will be crucial.

The article also details potential impacts on specific sectors. Banks might see lower funding costs with a government change but could be hurt by falling interest rates. Real estate companies could benefit from lower financing costs, but housing prices remain complex, with potential for increased supply to temper demand. The energy and defense sectors' performance may depend on policy continuity versus renegotiated terms, while tech companies could see stable demand but fluctuating valuations. Retail and food sectors will be influenced by the shekel's exchange rate and potential regulatory changes.