Tel Aviv stocks: Rebound or long slide?

After the Tel Aviv Stock Exchange recorded its worst day since October 2023 yesterday, the market is expected to open negatively today. The main indices fell sharply yesterday, against a background of fears of a rise in internal tensions in the country because of the government’s intention to remove Shin Bet chief Ronen Bar and Attorney General Gali Baharav-Miara.

Moreover, the construction and real estate sector indices fell by 6.3% and 4.5% respectively, after the Bank of Israel took steps against financing deals offered by developers to home buyers, via the banks.

Yaron Fridman, head of research at Bank Hapoalim, points out that the falls yesterday were in almost all sectors, including those that on the face of it are not directly affected by events within Israel. “Investors are taking profits after a period of rising prices in Israeli stocks,” he says.

The Phoenix Holdings chief economist Matan Shitirit says that analysis of the Tel Aviv 35 Index over the past 25 years shows that in 65% of cases, after a fall of more than 3% in one day, the index gave a return averaging 32% over the following year, while in 35% of cases the return was negative, averaging minus 13%. The last time that the index fell by 3% was on October 15, 2023, but it rose by 2.5% the very next day, and in the year following gave a return of 30%.

Amid the falls, there were a few Tel Aviv 125 Index stocks that rose. The outstanding one was Energean, despite its announcement of the final cancellation of its deal to sell assets in Egypt, Italy, and Croatia. Defense company Elbit Systems also rose, as investors see the renewed escalation in fighting in the Gaza Strip and Lebanon leading to greater demand for its products. El Al also rose, with foreign airlines seen likely to cancel their return to Israel because of the fighting.

In the local bond market, the yield on 10-year Israel government bonds jumped by ten basis points to 4.47%. Bank Hapoalim chief financial markets strategist Modi Shafrir writes in his market survey: “The rise in internal tensions in Israel combined with greater geopolitical tensions led to a significant weakening of the shekel on Friday,” and on the bond market he writes, “The market now prices Israel’s credit rating at between BBB and BBB-,” several notches below the rating agencies current ratings.

“The depreciation of the shekel over the past month is substantial, especially in the light of the news of exits (acquisitions of Israel technology companies) which at any other time would have contributed to appreciation of the shekel,” Bank Hapoalim’s research department writes, and adds, “The political uncertainty is playing a significant role in the markets. It is deterring local and global investors, and is probably preventing an improvement in Israel’s credit rating, which might have come given the geopolitical changes in the region and the passage of the budget.

“The political risks remove an interest rate cut from the agenda at present, but the speed of developments is rapid, and things could change in the second half of the year.” The banks says that the 2.3% inflation forecast for the coming year is now irrelevant, and will be revised upwards because of the depreciation of the shekel.

Published by Globes, Israel business news – en.globes.co.il – on March 24, 2025.

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