Israeli Markets Fear Election Stalemate, Netanyahu Government's Return
Translated & summarized from Arab48 by baba
Israeli financial markets are worried about upcoming elections leading to a political stalemate, potentially reviving economic risks associated with the Netanyahu government's judicial overhaul plan. A study shows the Tel Aviv 125 index fell significantly before indecisive elections, while rising after decisive ones. Despite market recovery post-war and expectations of government change, recent slowdowns are linked to uncertainty about Netanyahu's coalition remaining in power. Post-election, stock performance tends to equalize, but investor concerns now include the economic and judicial direction of any future government.
The story in 6 lines · by baba
- Israeli financial markets fear upcoming elections may result in a political stalemate.
- A study shows the Tel Aviv 125 index dropped 5.3% before indecisive elections.
- Concerns include the return of economic risks tied to the Netanyahu government's judicial overhaul plan.
- The stock market rose after the October 2023 war, anticipating a government change.
- Recent market slowdowns are linked to uncertainty about the current coalition remaining in power.
- Post-election, stock performance tends to equalize regardless of electoral outcome.
Israeli financial markets are increasingly concerned about the upcoming Knesset elections resulting in a political stalemate, with fears that a continued government under Prime Minister Benjamin Netanyahu could reintroduce economic risks linked to his administration's judicial overhaul plan. A new study indicates that markets are sensitive to the potential for political deadlock months before elections.
According to an Israeli economic analysis based on a study by economist Nisan Avraham for the Tel Aviv Stock Exchange, investors anticipate election outcomes when assessing political risks. The study, which examined ten election rounds since 2003, found that the Tel Aviv 125 index dropped an average of 5.3% in the three months preceding elections without a clear winner, compared to a limited 0.2% decline before decisive elections. This highlights market sensitivity to the possibility of government formation difficulties.
The current elections differ due to the repercussions of the judicial overhaul plan, initiated by Netanyahu's government and Justice Minister Yariv Levin, which negatively impacted Israeli stocks in the year before the Gaza war. Conversely, the stock market rose after the October 2023 war began, as investors believed the conflict reduced the likelihood of the judicial overhaul proceeding and increased chances of a government change.
After hitting lows on October 26, 2023, the Tel Aviv 35 index saw a near-continuous rise until May 2026, attributed to expectations of a government change through elections. However, the past five months have seen a relative market slowdown due to international factors and diminished certainty about replacing Netanyahu's government. The possibility of the current coalition remaining in power forces investors to reassess risks they thought had receded.
Despite potential stalemates, the study suggests that the performance gap in stocks between decisive and indecisive elections largely disappears in the months following the vote. Five months after indecisive elections, the Tel Aviv 125 index yielded approximately 6.7%, compared to 6.5% after decisive elections. In the year following elections, the index averaged a 16.4% return, versus a 11.5% annual average during the study period, though these gains often coincided with positive global market trends.
The election's impact also extended to the currency market, with the shekel appreciating 1.4% against a basket of currencies in the year before elections and 2.5% in the year after. The analysis concludes that markets primarily seek political certainty, with factors like interest rates, inflation, economic growth, and geopolitical developments dictating trends post-election. The judicial overhaul's consequences have made the next government's identity and policies an additional concern for investors, extending beyond electoral deadlock to encompass economic and judicial directions.
