On the eve of a tight election in Israel, a curious tension has emerged: a market that has climbed through years of war now leans toward the hope that a long-serving prime minister will be displaced. Investors who have watched Tel Aviv's stocks, bonds and shekel rise sharply since the attacks of October 2023 are weighing whether a change of leadership would reward them further, or whether the deeper costs of conflict will keep pressing on the nation's finances. The outcome, unsettled by polls that point to no clear majority, will decide less a single trade than the country's direction, its all
Israeli Markets Bet on a Netanyahu Defeat as Election Nears Amid Wartime Rally
The war has cost the Israeli economy over $55 billion by last year, equivalent to 8.6% in cumulative lost GDP growth, per central bank estimates.
Neither bloc is expected to reach the 61 seats needed to govern
Mark
Why would markets care who wins if both candidates promise to press Hamas and Iran?
Mimi
Because the differences lie elsewhere. JPMorgan points to relations with Western allies and the judicial overhaul, and Ackman talks about a government without Ben-Gvir and Smotrich.
Mark
So how big is the expected effect?
Mimi
JPMorgan estimates the shekel could swing as much as 3% on the result.
Luke
That's one bank's estimate, and the direction rests on assumptions about what an opposition government would do. Nobody has confirmed those outcomes.
Mark
The rally has been huge, though. Is politics behind it?
Mimi
The article credits tech, the global AI boom and defence spending near 8% of GDP. Politics isn't named as the driver.
Luke
Right. Stocks up 130% and the shekel up 25% are facts. Why they rose is analyst attribution.
Mark
What are the risks?
Mimi
Debt near 70% of GDP, a deficit around 4.5%, and foreign funds holding Israeli equities at a record low.
Luke
And a deadlock. Past elections suggest short-term volatility that usually fades, but that's history, not a guarantee for this vote.
Mark
Why the Lebanon angle?
Mimi
One investor, Sambor, called Lebanese bonds a proxy for easing regional tension.
Luke
Which is a single investor's view, and it depends on a Netanyahu defeat actually calming things. Unknown.
Il Polso
- Tel Aviv stocks have surged 130% since October 2023 while the shekel has gained 25%, yet beneath the gains sits a debt load near 70% of GDP.
- Polls show neither Netanyahu's Likud nor Eisenkot's opposition bloc reaching the 61 seats needed, raising the prospect of prolonged coalition talks or another vote.
- Investors split over whether an opposition win would lift the shekel by as much as 3% and ease tensions with Iran, or whether the bet is already priced in.
- Foreign funds hold Israeli equities at a record low, and the budget deficit sits near 4.5% of GDP, a gap that markets fear could widen while government stays stalled.
- Historical patterns offer relief, as post-election turbulence has usually faded within a month, but the next weeks hinge on whether anyone can build a governing majority.
On the eve of a tight election in Israel, a curious tension has emerged: a market that has climbed through years of war now leans toward the hope that a long-serving prime minister will be displaced. Investors who have watched Tel Aviv's stocks, bonds and shekel rise sharply since the attacks of October 2023 are weighing whether a change of leadership would reward them further, or whether the deeper costs of conflict will keep pressing on the nation's finances. The outcome, unsettled by polls that point to no clear majority, will decide less a single trade than the country's direction, its alliances and the pace at which its economy can heal.
Israel goes to the polls on Tuesday, October 27, 2026, and some of the investors who have profited from its markets over the past three years are hoping for one result: that Prime Minister Benjamin Netanyahu does not return to power.
The gains are real. Since the Hamas attacks of October 7, 2023, Tel Aviv's stock market has climbed 130%, well ahead of Wall Street, and the shekel has strengthened 25%. Analysts credit the country's technology sector and the global AI boom, along with a defence budget that has nearly doubled to around 8% of GDP.
The race itself is tight. Neither Likud nor the opposition alliance led by former military chief Gadi Eisenkot appears likely to reach the 61 seats needed in the 120-seat Knesset, which could mean long coalition talks or yet another election. JPMorgan estimates the shekel could swing as much as 3% on the result, and several analysts argue that an opposition government, especially one without the far-right ministers Itamar Ben-Gvir and Bezalel Smotrich, could restore Israel's standing with Western allies and reopen the path to wider Abraham Accords ties.
Yet few expect serious damage if Netanyahu remains. Investors such as Union Investment's Sergey Dergachev have been buying Israeli bonds, which have returned about 30% over two years, and point to the economy's resilience through years of conflict and political turmoil.
The warning signs are harder to ignore. Foreign funds' holdings of Israeli equities have fallen to a record low, the war has cost the economy more than $55 billion, and public debt is nearing 70% of GDP. Central bank governor Amir Yaron has urged the government to preserve room for fiscal policy.
History offers some reassurance. Past elections have brought short bursts of volatility, but losses have usually been recovered within a month. For now, the question is whether a coalition can be assembled quickly, or whether Israel will be heading back to the polls.
Israel votes on Tuesday, October 27, 2026, and some of the investors who have made money in its markets over the past three years are betting on one outcome: that Prime Minister Benjamin Netanyahu loses.
The numbers behind that bet are striking. Since the Hamas attacks of October 7, 2023, the Tel Aviv stock market has risen 130%, well ahead of Wall Street's 80%. The shekel has gained 25%, among the strongest currency performances in the world. Analysts credit part of this to Israel's tech sector and the global AI boom. Defence spending, which has nearly doubled to around 8% of GDP, has also helped.
Polls show a tight race. Neither Mr. Netanyahu's Likud bloc nor the opposition alliance centred on former military chief Gadi Eisenkot is expected to reach the 61 seats needed in the 120-seat Knesset. That points to long coalition talks or even another election. Both men have vowed to keep up pressure on Hamas and Iran, so markets are looking at the broader policy differences between them.
JPMorgan estimates the shekel could move as much as 3% depending on the result. It says an opposition win that improves ties with Western allies and halts the judicial overhaul that triggered mass protests in 2023 could strengthen the currency, while another Netanyahu-led government could weaken it. Billionaire investor Bill Ackman, who did not endorse a candidate, said a government without the far-right ministers Itamar Ben-Gvir and Bezalel Smotrich would signal Israel was "turning a new page" and could help rebuild its international credibility and widen the Abraham Accords. IBI Investment House's chief economist, Rafi Gozlan, expects an opposition victory to lower Israel's risk premium, put upward pressure on the shekel and draw a positive reaction from the local market. Charlie Robertson, chief economic adviser at Equity Bank, said the regional question matters most: a Netanyahu win might raise the chances of escalation with Iran, while a defeat might ease tensions.
Yet few investors expect Israeli assets to suffer if Mr. Netanyahu stays. Stocks and bonds have been resilient through years of war and political upheaval. Sergey Dergachev of Union Investment has been buying Israeli bonds ahead of the vote, betting the economy and the companies he favours will stay strong. He said bonds are less prone to big swings and that the region's intertwined conflicts should eventually ease. Government bonds have returned about 30% over two years, more than double the main emerging-market indexes.
Caution persists among foreign investors. Copley Fund Research data show the share of global funds holding Israeli equities is at a record low, sharply down since 2023. T. S. Lombard's Christopher Granville cited central bank estimates that the war had cost the economy more than $55 billion by last year, equal to 8.6% in cumulative lost GDP growth. Public debt has climbed to nearly 70% of GDP, about 10 percentage points above 2022, and the budget deficit is expected to stay near 4.5% of GDP, against under 2% before the conflict. Central bank governor Amir Yaron said last week that Israel must "preserve adequate fiscal policy space" given the Iran war.
The main danger some investors see is an inconclusive result that prolongs uncertainty and delays budgets, reforms and investment. History offers some comfort. Tel Aviv Stock Exchange research covering the last 10 elections found volatility in leading indexes rose by as much as 45% in the weeks after voting compared with a typical week, but initial losses were usually recovered within a month, with an average gain of about 1.7%. In the year after elections the TA-125 returned an average 16.4%, versus a long-term annual average of 11.5%. Analyst Nissan Avraham said deadlock often weighed on stocks before voting, but the effects typically faded within months. Lior Yochpaz of Menora Mivtachim said businesses have thrived despite political upheaval, helped by a relatively business-friendly environment.
Some investors prefer to place the trade elsewhere. TT International's Jean-Charles Sambor said a Netanyahu defeat or weakened government could ease regional tensions and help Lebanese bonds, calling Lebanon "a good proxy." What to watch after Tuesday is whether anyone can assemble 61 seats, or whether the country heads back to the polls.
Citazioni salienti
If Netanyahu is reelected it might increase the chances of further escalation with Iran, whereas a defeat might be seen as lessening the tensions.— Charlie Robertson, chief economic adviser, Equity Bank
A government without Ben-Gvir and Smotrich would signal Israel was turning a new page.— Bill Ackman, investor (paraphrased)
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War & Conflict