Tel Aviv markets drop as election results leave government formation in limbo

Israeli investors faced a volatile start to the trading week following Tuesday's general election, with major stock exchange indices falling sharply on Wednesday before showing slight recovery on Thursday morning. The Tel Aviv Stock Exchange’s primary benchmarks recorded significant declines as the market digested inconclusive results that failed to deliver a definitive political outcome.

According to TheMarker, the TA-35 index dropped by 1.8 percent and the TA-125 fell by 2.5 percent on Wednesday. Ynet reported that the TA-90, another key index, lost 4.6 percent of its value. Sector-specific indices for banking, insurance, and real estate also experienced sharp declines, reflecting broad-based selling pressure across the market.

The currency market mirrored the equity stress. The shekel depreciated against both the US dollar and the euro after months of strong performance. At one point on Wednesday, the dollar traded at 3.13 shekels, while the euro traded at 3.47 shekels, according to Ynet.

Nissan Avraham, an economic expert, told TheMarker that the decline reflects a correction of optimistic expectations that had built up before the vote. He noted that the market sought a clear political resolution, but the possibility of a prolonged deadlock weighed on trading activity. Avraham added that while short-term volatility is expected, historical patterns suggest the exchange usually rebounds from such sharp drops.

Yosef Freiman, a market risk management expert, explained to Ynet that initial euphoria over the opposition's performance had caused the dollar to weaken against the shekel. However, updated exit polls showing Prime Minister Benjamin Netanyahu’s bloc winning more seats than initially projected reversed that trend, leading to renewed depreciation of the currency.

As the Central Elections Committee continued counting on Thursday, Netanyahu’s far-right bloc held 53 seats in the Knesset, while Gadi Eisenkot’s Zionist opposition bloc held 48. The two Palestinian-led parties, the Joint List and Ra’am, hold a combined 19 seats, positioning them as potential kingmakers for any new government. Netanyahu’s ruling coalition had lost 15 seats as of Thursday morning.

An op-ed in TheMarker described the market reaction bluntly, stating that the exchange "prayed for a change of government and got punched in the face." The piece added that the economy does not favor the current results. This volatility follows recent turmoil after Netanyahu suggested using cryptocurrency to weaken international sanctions, a move the Central Bank rejected by stating that crypto coins cannot serve as a bypass for sanctions.