Recent history shows that the Israeli stock market and economy can perform regardless of the political situation. Five elections have been held in the last three and a half years, and the economy has continued to grow, with the main indices delivering gains to investors. However, the situation may be changing as a result of recent events since the new government took power.

Analysts’ forecasts for Israeli securities have been closely tracking developments on the Israeli political stage in recent weeks, as the government has expressed a desire to spend more money on social programs in order to address rising costs. Furthermore, the rating agency S&P Global Ratings expressed concern about the government’s plans. According to Reuters, Maxim Rybnikov, the organization’s director in charge of Israel’s rating, has stated that planned changes to Israel’s legal system may jeopardize the country’s credit rating. At the same time, the agency had inquired with the Ministry of Finance about the possibility of diverting funds from Israel’s Citizens Wealth Fund, which is intended to benefit future generations, to finance current spending.

Despite raising their concerns, market analysts remain cautious. They have also avoided mentioning such issues in their regular reviews. Nonetheless, their remarks reflect a general sense of apprehension and worry about Israel’s capital market.

Rafael Gozlan, the chief economist at IBI Investment House, writes in the company’s weekly macro economic review, “In our opinion, yield levels (on government bonds) for the medium to long term are too low, both in terms of interest rate risk and the significant risk posed by local political change. The local market is pricing an outlook similar to global developments, with further interest rate rises in the coming months and a rate turning point in 2024, and is not factoring in the effects of potential changes in fiscal policy, security, and the independence of Israel’s institutions.”

According to some market experts, maintaining Israel’s current high rating requires the independence of the Bank of Israel and the justice system. Even though there is currently no risk that this will change in the near future, recent political events in Israel and the Norwegian sovereign wealth fund’s announcement that it might sell its shares in Israeli companies have brought the country’s political risks to the attention of foreign financial institutions.