Election campaigns have become commonplace in Israel in recent years. In fact, no less than eleven general elections have been held in Israel since 1999, four of them in the two years between 2019 and 2021. Now that the Knesset is about to be dissolved again, the elections scheduled for end of October, the question arises as to how this will affect the local stock market.
The immediate response from market veterans is that frequent election campaigns and political events generally do not have a direct effect on trading on the Tel Aviv Stock Exchange, which reacts to very different events, such as foreign market turmoil and significant economic changes, such as level decisions. of inflation and interest rates.
Gilad Altshuler, co-CEO of investment firm Altshuler Shaham, sees no effect on the stock market from the election campaign. “Fortunately, the government is not running the Israeli economy,” Altshuler said. “It simply came to our notice then. We have a very strong and very talented nation here. Thanks to the people, the economy here is strong. Elections or not, it doesn’t matter to the economy. Nothing, zero.
“We had four elections in a few years. The technology industry is working, and as long as we have children, “moving forward, multiplying and filling the earth,” the economy is strong. “Talented Israelis are making money all over the world, and the world of high technology is aware of this story,” Altshuler added. “After the election,” he says, “it looks like there will be no surprises, whether Bibi returns or not. So I don’t think the election campaign matters to the Israeli capital market.”
Altshuler is not alone. Economists and market participants tend to agree that the link between elections and stock market performance is weak, to the point of non-existence. One of those who finds it difficult to find any effect of political drama on financial markets is Bank Leumi fixed income analyst David Reznik. “Since the Israeli election is something that has become part of the work plan, I don’t think it excites people in the capital market anymore.
“The alternatives are clear to the public: it’s back to Netanyahu or more. From an economic point of view, there are not many different choices. “What we see today is a very positive trend, but it is compared to the rest of the world and has nothing to do with what is happening in the elections,” Reznik said.
However, the dissenting voice is Rafi Gozlan, chief economist at IBI Investment House. He argues that in the current circumstances, the collapse of the government could have a negative effect stemming from expectations of further interest rate hikes. “It’s no surprise that we’re heading for elections,” Gozlan said. The way it turned out probably came a little earlier than expected, but if not now, it was clear that this would happen when we reached the 2023 budget.
“We are approaching the elections in a good fiscal position, unlike in the previous rounds. This time the deficit is practically zero. This week we saw very strong figures for the start of construction and through this we can understand the significance of the economic paralysis of one of the strongest sectors of the economy. The traffic jam there has been cleared and we are seeing an increase. This, together with import reforms, could help reduce high inflation.
“It is clear that some impulse has already been stopped and that is certainly unfortunate. This has immediate consequences for the Bank of Israel, because the burden on it (inflation restraint, HS) will become heavier. In these circumstances, we are likely to see larger and faster interest rate rises over the next six months. “
We have been in a falling market since the beginning of this year. The Tel Aviv 35 index is down 8.6%, while on Wall Street the decline is in double digits: Nasdaq is down 31%; The Dow Jones is down 18%; and the S&P 500 is down 23%.
So far this week, shares in Tel Aviv have risen well, but this is probably not related to the announcement of upcoming elections, but more to the rise in futures on the Wall Street index, which led to positive reactions in European markets.
Posted by Globes, Israel Business News – en.globes.co.il – on June 22, 2022.
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