Investors on the Tel Aviv Stock Exchange woke up Tuesday to military hostilities between Israel and forces in Gaza, including heavy rocket fire on Israel’s south and rockets directed as far north as the Tel Aviv area. Business activity was also limited as far north as Tel Aviv, but overall, analysts figure Israel’s economy will take the hostilities in stride.
In the wake of the fighting, the major indexes on the Tel Aviv Stock Exchange declined somewhat, as did government bonds. The shekel, which has been particularly strong in recent months, slipped 0.34% against the U.S. dollar to 3.511 and 0.22% against the euro to 3.868. But the hostilities came at a robust time on the Tel Aviv exchange, when the benchmark Tel Aviv-35 index is just a few percentage points from its all-time high.
The shekel had gained more than 9% against the trade-weighted basket of currencies between January and October. “As we see it, despite the intervention of the Bank of Israel and despite [Tuesday’s] security incidents, the shekel will continue to strengthen,” said Ofer Klein, the head of economics and research at Harel Insurance and Finance.
The Tel Aviv-35 lost 0.08% on Tuesday, closing at 1,658.85 points, while the Tel Aviv-125 was off 0.13%, ending the day at 1,569.13. Initially the Home Front Command instructed all non-essential businesses in Tel Aviv to remain closed. Many traders did not show up for work and trading volume for the day was a thin 1 billion shekels ($285 million).
Bank branches were closed not only near the Gaza Strip but as far north as Tel Aviv, other than key branches that remained open. Insurance companies in the same swath of territory also had limited operations.
Rafi Gozlan, the chief economist at IBI Investment, called the periodic rounds of fighting part of the Israeli reality. “The economy and the local capital market have experience with military escalations, which mostly have limited, short-term impact on economic activity other than the tourism sector. The relatively negligible harm to economic activity means that the local capital market also responds in a moderate way, if at all, to events of this kind.
“In the past, there wasn’t as broad a shutdown of activity following a military escalation as there was in the current episode. In addition, there is ongoing tension with Iran. The security deterioration highlights the importance of the financial strength of the economy,” Gozlan said.
Alex Zaberzhinsky, the chief economist at Meitav Dash Investments, said experience of the past decade shows that investors needn’t react to such military flare-ups and definitely shouldn’t panic. “An increase in security tensions for a limited time doesn’t affect economic activity. The economy is able to recover from the damage quickly even in the case of security incidents that last several weeks. It’s only in the tourism sector that the damage is felt longer term.”
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