Israel’s financial markets have demonstrated remarkable resilience and growth despite ongoing conflict and political instability over the past three years. Following the October 7 massacre, the Tel Aviv Stock Exchange (TASE) has surged approximately 130%, significantly outperforming the roughly 80% gain on Wall Street. Concurrently, the Israeli shekel has strengthened by around 25%, ranking it among the world’s best-performing currencies in recent months.
Market analysts attribute much of this robustness to Israel’s thriving technology sector, particularly benefiting from the global surge in artificial intelligence developments. Additionally, increased defense expenditures—nearly doubling to about 8% of the country’s gross domestic product—have also played a role in supporting economic and market performance.
As Israel approaches parliamentary elections scheduled for Tuesday, investors are weighing potential outcomes and their implications for regional stability and economic policy. The two main contenders—Prime Minister Benjamin Netanyahu and former military chief Benny Gantz Eisenkot—have pledged to sustain pressure on Hamas and Iran. Nonetheless, investors are keenly assessing how differences in broader policy approaches might influence market dynamics.
Financial institutions predict notable currency volatility following the vote. JPMorgan estimates the shekel could fluctuate by as much as 3%, depending on the election results. An opposition victory, seen as more likely to improve ties with Western allies and halt controversial judicial reforms that triggered massive protests in 2023, could strengthen the shekel and reduce Israel’s risk premium. Conversely, another Netanyahu-led administration might exert downward pressure on the currency.
Prominent investor Bill Ackman suggested that a government excluding National Security Minister Itamar Ben-Gvir and Finance Minister Bezalel Smotrich could mark “a new page” for Israel, enhancing international credibility and potentially encouraging the expansion of the Abraham Accords with neighboring states. Rafi Gozlan, chief economist at IBI Investment House, echoed this view, forecasting market gains and shekel appreciation under an opposition government.
Regional security considerations also weigh heavily on market expectations. Charlie Robertson, chief economic adviser at Equity Bank, noted that Netanyahu’s return could heighten the risk of further escalation with Iran, while his defeat might ease regional tensions, factors that investors are carefully monitoring.
Despite these forecasts, many market participants maintain confidence in Israel’s economic fundamentals irrespective of the election outcome. Sergey Dergachev of Union Investment has been increasing holdings in Israeli bonds, viewing them as relatively insulated from market swings and anticipating a gradual reduction in regional conflicts over time.
Nonetheless, foreign investor engagement remains cautious. Data from Copley Fund Research reveals that the proportion of global funds invested in Israeli equities has fallen to a historic low since early 2023, indicating persistent international wariness despite the recent market rally.