Israeli Stock Market Recovers After Election Uncertainty, Study Finds
Translated & summarized from Makor Rishon by baba
A new study by the Tel Aviv Stock Exchange shows the Israeli market declines before inconclusive elections but recovers strongly afterward, outperforming U.S. markets. The TA-125 index gained an average of 16.4% in the year following elections, despite initial uncertainty. Foreign investors remain active, and the shekel has strengthened post-election.
The story in 5 lines · by baba
- The Israeli stock market declines before inconclusive elections but recovers strongly in the following year.
- The TA-125 index dropped 5.3% before non-decisive elections, compared to 0.2% before decisive ones.
- In the 12 months after elections, the TA-125 index yielded an average return of 16.4%.
- Foreign investors' holdings in Israeli securities are at a record $154 billion.
- The shekel strengthened post-election, rising 1.4% during election years and 2.5% afterward.
A new study by the Tel Aviv Stock Exchange (TASE) reveals that the Israeli stock market experiences declines in the months leading up to elections that do not result in a clear government formation. The research unit analyzed ten Israeli election cycles since 2003, finding a notable weakness in the local market before the two elections in 2019 that did not lead to a government, with the TA-125 index dropping an average of 5.3% in the three to five months prior. This contrasts with a mere 0.2% decline in election cycles that concluded with a government being formed. The study suggests investors anticipate political instability and price in this risk beforehand, meaning the market is not surprised by the outcome even without a clear result.
However, the findings indicate a significant recovery in the year following elections, regardless of their outcome. The TA-125 index yielded an average total return of approximately 16.4% in the 12 months after the vote, outperforming the average annual return of 11.5%. This performance also surpassed the U.S. S&P 500 index, which returned an average of 13.1% in dollar terms (adjusted to shekels) in the year after Israeli elections, a gap widened by the strengthening shekel.
Nisan Avraham, a macroeconomist at the TASE Research Unit and the study's author, offers two potential explanations for the pre-election weakness: increased political uncertainty driving investor caution, and the market's interconnectedness with global crises that sometimes coincide with election periods. He emphasizes that historical experience shows the market recovers relatively quickly even after inconclusive elections.
Despite recent market weakness, potentially a correction after previous gains, foreign investors remain active, with their holdings at a record $154 billion. In the past year, foreign investors net purchased 3.4 billion shekels more than they sold. The shekel also strengthened post-election, rising 1.4% against a currency basket during election years and an additional 2.5% in the subsequent years. For Israelis investing abroad, this shekel appreciation can diminish dollar-denominated returns.
