Parliamentary election: Israel's leading index falls by three percent - the currency is also under pressure

Jerusalem, London. The result of Israel's parliamentary election put pressure on the country's financial markets on Wednesday. The local currency, the shekel, weakened by around two percent to $3.1185, heading for its biggest daily loss in almost 1.5 years. The leading index of the Tel Aviv stock exchange fell by around three percent. Israeli government bonds with long maturities also came under pressure.

After around 70 percent of the votes were counted, Prime Minister Benjamin Netanyahu's right-wing bloc is estimated to have 54 seats, while the opposition bloc around Gadi Eisenkot has 47 seats. However, this means that the majority of 61 of the 120 seats in parliament required to form a government is missed. “Israel’s financial markets reacted negatively to the outcome,” said William Jackson, chief emerging markets economist at Capital Economics. The next government will probably be unstable. If neither side manages to form a government, it would likely lead to another election.

According to experts, investors had hoped for a victory for the opposition. They hoped that a change of government would improve relations with Western allies, reduce regional tensions and end the controversial judicial reform that led to mass protests in 2023. Surveys that saw Eisenkot ahead had driven the markets in advance. The election result has now ended this upward movement.

Israeli stock exchanges had proven resilient since the Hamas attacks on October 7, 2023, despite war and political unrest. The leading index in Tel Aviv rose by more than 130 percent during this period, significantly exceeding the increase on Wall Street of around 80 percent. The shekel appreciated by around 25 percent, making it one of the world's strongest currencies. The prospect of a difficult government formation could now cause uncertainty, said Daniel Bergvall, head of forecasting at SEB.