Election campaigns have become a common occurrence in Israel in recent years. In fact, since 1999, no fewer than eleven general elections have taken place in Israel, four of them within two years between 2019 and 2021. Now, with the Knesset about to be dissolved once more and an election slated for late October, the question arises of how this will affect the local stock market.
The immediate answer from market veterans is that the frequent election campaigns, and political developments in general, have no direct effect on trading on the Tel Aviv Stock Exchange, which responds to entirely different events, such as the upsets on overseas markets, and significant economic developments, such as the inflation rate and interest rate decisions.
Gilad Altshuler, joint CEO of investment house Altshuler Shaham, sees no effect whatsoever on the stock market from election campaigns. "Happily, it’s not the government that leads the Israeli economy," Altshuler says. "Woe betide us if it was the government, it would be a catastrophe. We have a very strong and very talented nation here. Thanks to the people, the economy here is strong. Elections or not, it has no significance for the economy. Nothing. Zero.
"We’ve had four elections in a couple of years. The technology industry works, and as long as we have children, ‘go forth and multiply and fill the earth’, the economy is strong. Talented Israelis make money all over the world, and the high-tech world is aware of that story," Altshuler adds. "After the election," he says, "it looks as though there will be no surprises, whether Bibi comes back or not. So I think that the election campaign is of no significance for the Israeli capital market."
Altshuler is not alone. Economists and market players tend to agree that the connection between elections and stock market performance is weak, to the point of non-existence. One of those who believes that it’s hard to find any effect of the political drama on the financial markets is Bank Leumi fixed income analyst David Reznik. "Since elections in Israel are something that has become a fixture in the work plan, I don’t think that they get people on the capital market excited anymore.
"The alternatives are clear to the public: it’s back to Netanyahu, or more of the same. From an economic point of view, there aren’t any very different choices. What we are seeing today is a very positive trend, but that is in comparison with the rest of the world, and has no connection to what’s happening as far as elections are concerned," Reznik says.
A dissenting voice, however, is Rafi Gozlan, chief economist at IBI Investment House. He argues that in current circumstances the break-up of the government could have a negative effect, arising from expectations about further interest rate rises. "It’s no great surprise that we’re headed for an election," Gozlan says. "The way it turned out, it perhaps came a little sooner than expected, but if not now, it was clear that it would happen as we got towards the 2023 budget.
"We are approaching the election in a good fiscal position, unlike in previous rounds. This time, the deficit is practically zero. This week, we have seen very strong building starts figures, and through that we can understand the significance of economic paralysis on one of the strongest sectors of the economy. The logjam there has been freed and we are seeing a rise. That, together with reforms on imports, could help in bringing down the high rate of inflation.
"Clearly, some kind of momentum has now been halted, and that is certainly unfortunate. It has immediate consequences for the Bank of Israel, because the burden on it (of curbing inflation, H.S) will become heavier. In these circumstances, there’s a chance that we will see larger and more rapid rises in the interest rate over the next six months."
Since the beginning of this year, we have been in a falling market. The Tel Aviv 35 Index is down 8.6%, while on Wall Street the falls have been in the double digits: the Nasdaq is down 31%; the Dow Jones is down 18%; and the S&P 500 is down 23%.
So far this week, stocks in Tel Aviv have risen nicely, but that is probably less to do with the announcement of forthcoming elections and more to do with rises in Wall Street index futures, that have led to positive reactions on European markets as well.
Published by Globes, Israel business news - en.globes.co.il - on June 22, 2022.
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