Israeli Stocks Decline Ahead of Elections, Recovering Afterward
Translated & summarized from Calcalist by baba
The Israeli stock market is showing a negative trend ahead of elections, anticipating indecisive results, according to the Tel Aviv Stock Exchange's research unit. The TA-125 index has fallen 5.9% since July 27, with pre-election declines being steeper before indecisive votes. Post-election, the market tends to recover, rising after indecisive outcomes. This uncertainty also impacts the shekel's appreciation against other currencies.
The story in 6 lines · by baba
- Israeli stocks decline before elections, anticipating indecisive results, research shows.
- The TA-125 index fell 5.3% before indecisive elections versus 0.2% before decisive ones.
- After elections, the TA-125 index rose 2.3% following indecisive votes, but fell 0.7% after decisive ones.
- The market prices in political stagnation beforehand, not necessarily punishing it afterward.
- Political uncertainty also affects the shekel, slowing its appreciation against other currencies.
- Institutional investors fear a return to prolonged election cycles.
The Israeli stock market appears to be anticipating an indecisive outcome in the upcoming elections, according to research by the Tel Aviv Stock Exchange's research unit. The unit's analysis suggests that the stock market experiences greater declines in the weeks leading up to elections that do not result in a stable government.
Data indicates that in the three months prior to elections without a clear government formation, the TA-125 index fell by an average of 5.3%. This contrasts with a mere 0.2% drop before elections that led to government formation. Since July 27, the index has already decreased by 5.9%. A month before elections, the market dropped 3.3% before indecisive elections, compared to 0.7% before decisive ones.
However, the research shows a reversal after election day. In the month following indecisive elections, the TA-125 index rose by an average of 2.3%, while it fell by 0.7% after decisive elections. Three months later, cumulative returns were 4.7% for indecisive elections and 4.1% for decisive ones. After five months, the difference was negligible, with returns of 6.7% versus 6.5%.
The exchange's interpretation is that the market prices in political stagnation beforehand and does not necessarily continue to be penalized after the election. Over the 12 months following ten elections studied, the TA-125 index rose an average of 16.4%, compared to a long-term average annual return of 11.5%, suggesting elections generally benefit the market.
Institutional investors are reportedly concerned about the possibility of prolonged election cycles, similar to the four rounds held between April 2019 and March 2021. This political uncertainty also affects the shekel, which strengthened by an average of 1.4% against a basket of currencies in the year before elections, below its long-term appreciation rate. The research suggests political uncertainty may increase the risk premium for foreign investors, who tend to wait for clarity after the elections.
