In the midst of a prolonged conflict lasting over seven months, a large-scale forecast survey conducted by the Tel Aviv Stock Exchange on the occasion of Independence Day offers a glimmer of cautious optimism for Israel’s financial markets. More than 100 advisers and investment consultants participated in the survey, expressing their outlook on the performance of local and global stock indices, interest rates, and currency exchange rates for the coming year.

A significant majority of the respondents (71.1%) believe that the Tel Aviv 125 index will rise by more than 10% over the next year. Meanwhile, 25.5% anticipate a more modest increase of up to 5%. Only 2.4% foresee a decline in the index of more than 10%.

However, this optimism follows a year when the Tel Aviv stock market significantly lagged behind Wall Street, delivering a return of just 4% in 2023 (Tel Aviv 35 index) compared to nearly 25% for the S&P 500. The gap has continued to widen into the current year.

Moderate Expectations for Interest Rates and Strengthening Shekel

The interest rate policy of the Bank of Israel remains a focal point for many investors. Despite a recent reduction in interest rates to 4.5%, further cuts appear increasingly uncertain. Inflation concerns linger due to rising taxes, increasing prices, and the impact of the Turkish boycott.

Despite the shekel’s recent volatility since the war began, the survey reveals a general sense of optimism regarding its future exchange rate against the U.S. dollar. A majority of 61% predict that the shekel will trade between 3.5 and 3.7 per dollar within a year (from the current rate of 3.72). Meanwhile, 17% expect the shekel to weaken beyond 3.7 per dollar, while 21.7% believe it will strengthen to a range of 3.3 to 3.5 per dollar.

Optimism Rooted in Stabilization Hopes

Yaniv Pagut, Senior Vice President of the Tel Aviv Stock Exchange, highlighted that the survey reveals an underlying optimism about the stabilization of the security situation. He pointed out that the majority of consultants are upbeat about the potential growth of both the Israeli and U.S. stock markets, with most expecting an increase of over 10% in the coming year. At the same time, advisers foresee a reduction in interest rates in Israel. Pagut described this outlook as relatively optimistic, assuming that global and domestic monetary conditions will enable the Bank of Israel to steadily ease its monetary policy.

In summary, the survey provides a cautiously optimistic outlook for Israel’s financial markets, suggesting that despite the ongoing war, investment advisers anticipate a positive trajectory across key financial indicators in the coming year.

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