Israeli Markets Plunge as Election Results Inject Uncertainty

By דור אופיר

Translated & summarized from Walla by baba

CenterCharged tone

Hebrew · 2 newsrooms covering

Israeli financial markets reacted negatively to the latest election results, with the shekel falling and the stock market experiencing significant drops. Initial optimism about a potential government change reversed as vote counts introduced uncertainty, leading to a weaker shekel and declining stock indices. Investors are now focused on the practical implications for government stability, budget, and economic policy amidst a prolonged period of uncertainty.

The story in 5 lines · by baba

Israeli financial markets plunged as election results introduced significant uncertainty.
The shekel weakened considerably, with the dollar rising to approximately 3.10 shekels.
Major stock indices like TA-35 and TA-125 saw substantial declines.
Bond yields increased, signaling investor demand for higher returns.
The market's reaction reflects a shift from earlier optimism about potential government change.

Israeli financial markets experienced a significant downturn on Wednesday, with the shekel depreciating sharply and the stock exchange seeing substantial losses. This reaction followed the release of initial election exit polls and vote counts, which introduced a high degree of uncertainty into the market after two days of optimism and sharp gains. The dollar surged to approximately 3.10 shekels, a notable increase from its previous day's low of around 3.02 shekels. On the Tel Aviv Stock Exchange, the TA-35 index fell by about 1.4%, the TA-125 lost approximately 1.8%, and the TA-90 plummeted by around 3% shortly after trading resumed following a holiday. Sectors such as banking, insurance, and construction experienced declines of 3% to 4%. The bond market also reacted, with the yield on ten-year government bonds rising by about 0.06 percentage points to approximately 4.1%, indicating a drop in bond prices and a higher required return for investors.

Earlier in the week, the market had priced in a potential change in government, anticipating that this could lead to reduced political tensions, improved relations with Western countries, and a lower risk premium for Israel. On Monday, the TA-35 index had risen by nearly 2%, and the TA-125 by 1.81%. Even on Tuesday, when the stock market was closed, the shekel strengthened to a five-week high, reflecting expectations of a potential shift in power. However, as more complete results emerged, this scenario became less certain.

The foreign exchange market reacted swiftly due to its continuous operation, reflecting the shift in expectations. Analysts had previously predicted significant fluctuations in the shekel based on election outcomes. The current volatility may also be exacerbated by changes in trading volumes and hedging activities by institutional investors.

Looking ahead, investors are expected to focus on practical matters such as the formation of a stable government, the leadership of the Ministry of Finance, the approval of the 2027 budget, and the implications for the deficit and defense spending. Historically, market volatility has increased in the weeks following Israeli elections. The markets are now adjusting to the prolonged uncertainty surrounding the final election results and the path to forming a new government.