Netanyahu Just Finished Another Four Years, but the TA Stock Exchange Hardly Budged

Market animals have low expectations of economic change under the next government, regardless of who forms it

A man stands in front of an electronic board displaying market data at the Tel Aviv Stock Exchange in Israel, January 29, 2017.
\ Baz Ratner/ REUTERS

Prime Minister Benjamin Netanyahu’s most recent four-year term was unimpressive as far as the stock exchange is concerned, which saw returns of 0% for some of Tel Aviv’s leading indexes over that period.

The blue-chip Tel Aviv-35 Index was 1,565 points as of the day after Netanyahu’s election in 2015, while it was 1,560 as of Tuesday. The broader Tel Aviv-125 Index had a similar performance, largely because pharmaceuticals giant Teva saw its share price plummet. All told, shares on the Tel Aviv stock exchange, as measured by the All-Share Index, dropped 4.3% over Netanyahu’s four-year term.

There were, however, several sectors that did unusually well, including the bank sector, which is a reflection of the local economy. Bank shares were up 80%, despite a reform advanced by Finance Minister Moshe Kahlon to increase competition in the sector.

Real estate shares, too, reflected the increasing real estate prices; they gained 37% over the previous four years, including 13% just in the past year.

Bank of Israel interest rates were nearly zero during the entire period, at 0.1%, an all-time low. The central bank raised rates in November to 0.25%.

The shekel had a strong four years, influenced by Israel’s strong economy and the low interest rates, the increase in U.S. interest rates and Europe’s struggling economy. The dollar weakened by 11% versus the shekel over the past four years, and is currently trading at 3.58 shekels to the dollar, its lowest level in a year.

The euro weakened by 5.7% over the previous four years and is currently 4.02 shekels, while Britain’s pound is down 20% due to Brexit.
Israel’s macroeconomic indicators are still strong, with unemployment at a very low 4.1%. Economic growth ranged between 2.5% to 4% during the previous four years.

No change expected

Over the next few days, it will become clear who is forming Israel’s next government – Netanyahu, or his opponent Benny Gantz. As opposed to the two previous election campaigns, this one included nearly no discussion of economic or financial issues; rather it focused nearly entirely on the legitimacy of Netanyahu continuing as prime minister.

However, market animals are largely indifferent when it comes to the question of whether Gantz or Netanyahu will form the next government – they have little to say about how the two men differ in terms of economic policy.

“Neither of the leading parties has an organized economic policy,” said Amir Kahanovich, the chief economist at the Excellence investment house. “It’s hard to say what either candidate will do.”

The majority of the conversation on economic matters focused on how the budget is divided up; there was little significant discussion of trade barriers, workforce flexibility and competitiveness, he said.

“Those who were clear [on these issues] were the extremists,” he said.
Alex Zabezhinsky, chief economist at the investment house Meitav Dash, said that unless something major happens, Israel’s economic policy is unlikely to change under the new government.

When Netanyahu announced the elections in November 2018, the market responded with sharp drops. In general, stock exchange investors don’t like uncertainty, and elections sent investors into waiting mode. Two weeks later, global markets fell over concerns that the United States would be quickly raising interest rates.

Since that announcement, the Tel Aviv-125 Index of large-cap shares has fallen a total of 3%, after dropping 15% and recovering most of that; the small-cap index SME-60 is down 4.5% from mid-November, after recovering from a low of 17% off its November level.

Research has shown that on average, Tel Aviv stocks benefit from elections, but most of the benefit comes after the election.

“Israel’s capital market wants Netanyahu to leave office – but it’s dying of fear that this may actually happen. The capital market, in general, is full of people who love to hate Netanyahu and don’t thank him for what he’s done over the years. An election loss for Netanyahu won’t be good news.

No one thinks that Gantz knows how to handle an economy. But like people who are struggling in life and vote for Netanyahu anyway, capital market animals will vote for [Gantz’s] Kahol Lavan,” said a senior investments manager to TheMarker on Tuesday.