Israel’s parliamentary election is underway on Tuesday, October 27, with early voter turnout reaching its highest level in more than 50 years. The Tel Aviv Stock Exchange will remain closed for the day, while investors await the election outcome amid lingering geopolitical tensions following the October 7, 2023, Hamas attacks and the subsequent wars in Gaza, Lebanon, and Iran.
The result could have implications for Israeli stocks, the shekel, and government bonds when markets reopen.
Benjamin Netanyahu, Israel’s longest-serving prime minister, with 19 years in office, is seeking another term while standing trial on corruption charges, according to Al Jazeera.
His Likud party and the far-right coalition it leads are locked in a close contest with an opposition bloc centered on former military chief Gadi Eisenkot. Neither side appears on course to secure an outright majority in the 120-seat Knesset, Israel’s parliament, according to opinion polls, cited by the media reports.
After rising for much of the year despite three years of war and political turmoil, Israeli stocks fell in early October. However, some investors see further upside if the opposition defeats Netanyahu in Tuesday’s election, potentially easing regional tensions and political risks.
Around 7.3 million people aged 18 and above are eligible to vote, according to Israel’s Central Elections Committee.
Reuters reported that opinion polls point to a tight contest, with neither Netanyahu’s ruling Likud bloc nor the opposition alliance expected to secure the 61 seats needed to form a majority government.
Israeli stocks and shekel have surged despite years of conflict
Since the October 7, 2023, Hamas attacks, Israel’s Tel Aviv stock market has surged 130%, far outpacing Wall Street’s 80% gain. The shekel has also strengthened 25%, making it one of the world’s strongest-performing currencies over the period, according to Reuters.
The report, quoting the analysts, said that some of the market’s resilience is to Israel’s technology sector and the artificial intelligence boom. Higher defence spending, which has nearly doubled to around 8% of gross domestic product, has also supported economic activity.
Over a longer horizon, the TA-125 index delivered an average return of 16.4% in the year following elections, compared with its long-term annual average of 11.5%, according to research cited by Reuters.
Israeli government bonds have also rallied, returning around 30% over the past two years, more than double the gains recorded by major emerging-market bond indexes.
Shekel could swing as much as 3% depending on election outcome
Reuters cited estimates from JPMorgan suggesting that the shekel could move by as much as 3%, depending on the election outcome.
With both Netanyahu and Eisenkot pledging to maintain pressure on Hamas and Iran, investors are closely watching their broader policy differences and the potential implications for regional stability.
An opposition victory could ease some investor concerns about Israel’s political direction and international relations, potentially supporting the currency. Conversely, a Netanyahu victory or prolonged coalition negotiations could sustain uncertainty and trigger market swings.
However, Israel’s fragmented parliamentary system means the party that wins the most seats may not necessarily form the next government. With neither bloc expected to secure a majority outright, coalition negotiations could take weeks, leaving investors to navigate uncertainty even after polling concludes.
Disclaimer: We advise investors to check with certified experts before making any investment decisions.
