Israeli Stock Market Faces Pressure Amid Geopolitical Uncertainty and Deficit
Market analysis indicates that the Israeli stock market lags behind global indices due to security uncertainty, high financing costs, and looming fiscal pressures.
The relative weakness of the Israeli stock market compared to leading global indices stems from a combination of macroeconomic pressures and geopolitical uncertainty, according to market analysis by Dror Karni.
Karni warns that the risk of accumulating diplomatic measures and international restrictions against Israel could impact the valuation of local companies, raise the country risk premium, and restrict price-to-earnings multiples due to concerns over foreign trade.
Economic Challenges and Political Uncertainty
Adding to these pressures is the proximity of the upcoming elections in Israel, which complicates structural decision-making and the formulation of a restrained budget for the coming year at a time when the state faces significant capital-raising needs. Simultaneously, the high-interest-rate environment continues to drive up financing costs, directly burdening local enterprises.
"The combination of currency depreciation, high energy prices, and fiscal uncertainty makes it difficult to create the necessary conditions for further monetary easing."
Foreign Exchange and Bond Market Pressures
According to Karni, the shekel is expected to remain subject to depreciation pressures in the near term as long as yield differentials support the US dollar, energy prices remain elevated, and the security and political fog persists. Globally, high yields on US government bonds and expectations of a hawkish monetary policy enhance the dollar's attractiveness, while locally, security risk premiums and fiscal policy uncertainty weigh heavily on the domestic currency.
Significant pressures are also being recorded in the government bond market. Karni points out that long-term yields are influenced by trends in the US bond market as well as the growing financing needs of the Israeli government against the backdrop of the deficit and war expenditures. This dynamic may force the state to offer investors a higher risk premium, particularly on long-term bonds.