Isranomics

Shekel shines, TASE surges: investors see opportunity despite political uncertainty

by | Jul 21, 2023 | Economy | 0 comments

In the realm of stock market investing, a well-known adage advises to “sell in May and come back in St Leger’s Day,” implying that summer months typically witness a market slowdown due to vacations, leading to limited gains. However, defying this conventional wisdom, the Tel Aviv Stock Exchange (TASE) is presently experiencing a remarkable resurgence in its performance. In the past week, the local capital market has taken an exciting new direction, while the shekel has demonstrated remarkable strength. Since the beginning of July, the Tel Aviv 120 Index has witnessed an impressive surge of 7.20%. Additionally, the shekel has shown significant appreciation against the dollar, reaching its highest value since mid-June.

This is a welcome development, as TASE has been underperforming compared to the Wall Street indices this year. While the S&P 500 and Nasdaq have recorded significant gains of 18.60% and 35.39%, respectively, since the start of 2023, the Tel Aviv 125 Index has risen by only 4.97%.

In recent days, the TASE has experienced a positive trend, and the shekel has strengthened, partly influenced by the gains on Wall Street. Furthermore, the latest inflation data released in Israel has contributed to reinforcing this trend, with the Consumer Price Index (CPI) remaining steady in June and annual inflation declining to 4.2%.

Moreover, promising developments have emerged on the political front, with the government persistently pushing forward its judicial reforms. Recent reports indicate ongoing discussions centered on “softening” the reasonableness standards bill, a move that might curtail the Supreme Court’s authority to review executive branch decisions. This news has had a positive impact on the TASE, driving its gains, and has also played a role in strengthening the shekel.

However, it is essential to highlight that despite the positive sentiment from the US and inflation news in Israel, there is no supplementary economic data available to explain the latest upsurge on the TASE. The local stock market has been notably trailing behind since the year’s commencement, leaving investors in search of reasons for the sudden July market revival.

Market sentiment has undergone a notable change, with some experts attributing it to recent political developments. They view these developments as a possible indication that the worst is behind us, leading to a boost in market confidence. However, amidst this positive outlook, uncertainty persists about whether political events have truly reached their lowest point.

Mizrahi Tefahot Bank’s chief economist, Ronen Menachem, points out that in the absence of significant fundamental changes in the current environment, volatility can be expected in the coming days. The uncertainty surrounding judicial legislation and its potential effects on economic activity and investor sentiment has created a thirst for positive headlines in the market. Therefore, if there are breaks in legislative moves, such as those seen recently between the first, second, and third readings of the reasonableness standards bill, the market tends to react positively.

However, Menachem also cautions that given the ongoing relationship between legislative moves and related protests, along with approaching second and third reading dates, the market is likely to remain volatile in the near future. Nonetheless, if the government and opposition leaders can reach an agreement on legal changes to judicial reform, along with favorable economic data, there is significant potential for the recent uptrend on the TASE to continue.

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