On the eve of a tightly contested Israeli election, the country's markets, which have climbed through three years of war and political turbulence, are quietly weighing a change of leadership. Neither Benjamin Netanyahu's Likud nor the opposition coalition around former military chief Gadi Eisenkot appears likely to command the 61 seats needed to govern, so the ballot may settle less than it promises. Investors are asking whether a new government would ease the region's long fever of conflict, and whether the economy, with its strong technology sector and heavy defence spending, can bear the co
Israeli Markets Eye Upside as Investors Weigh a Netanyahu Defeat After Three-Year Rally
Neither bloc is expected to reach the 61 seats needed to govern.
Mark
Why are investors even debating this? Markets have risen through three years of war already.
Mimi
Because the rally has had other engines: the tech sector, the AI boom, and defence spending near 8% of GDP. The election is about whether something more can be added, mainly lower regional tension.
Luke
Worth noting that the upside case is investors' opinion. JPMorgan's 3% shekel swing is an estimate, not an outcome.
Mark
And both leaders say they'll keep pressure on Hamas and Iran?
Mimi
Yes, so the difference investors cite is elsewhere: relations with Western allies, the judicial overhaul, and the role of Ben-Gvir and Smotrich.
Luke
Robertson's point that Netanyahu's return might raise escalation chances with Iran is a judgment, not a forecast the reporting can confirm.
Mark
What about the risks?
Mimi
Foreign funds' holdings of Israeli equities are at a record low. Debt is near 70% of GDP, the deficit around 4.5%, and the war cost more than $55 billion by last year per central bank estimates.
Luke
Yet the Tel Aviv exchange's data over 10 elections shows volatility spikes fading, with losses usually recovered within a month. That's history, not a guarantee, and nobody knows how this deadlock would play out.
Mark
So what's the real hazard?
Mimi
An inconclusive result, since neither bloc is polling at 61 seats. That could delay budgets and reforms.
Il Polso
- Israeli voters head to the polls Tuesday in a race so close that neither bloc is expected to reach the 61 seats needed to govern.
- Shekel traders brace for a swing of up to 3% depending on whether Netanyahu stays or is replaced.
- Foreign funds have pulled back to record-low holdings of Israeli equities, even as local stocks and bonds have rallied through years of war.
- Deficits near 4.5% of GDP and debt approaching 70% press on the budget, raising the stakes of any political deadlock.
- Historical data suggests post-election turbulence fades within weeks, but a drawn-out coalition fight could delay reforms and investment.
On the eve of a tightly contested Israeli election, the country's markets, which have climbed through three years of war and political turbulence, are quietly weighing a change of leadership. Neither Benjamin Netanyahu's Likud nor the opposition coalition around former military chief Gadi Eisenkot appears likely to command the 61 seats needed to govern, so the ballot may settle less than it promises. Investors are asking whether a new government would ease the region's long fever of conflict, and whether the economy, with its strong technology sector and heavy defence spending, can bear the cost of waiting for an answer.
Israel goes to the polls on Tuesday, and its financial markets are watching closely. The race is tight, and neither Prime Minister Benjamin Netanyahu's Likud nor the opposition alliance led by former military chief Gadi Eisenkot is expected to reach the 61 seats needed to form a government in the 120-seat Knesset.
The rally that has carried Israeli assets through three years of war has drawn on technology, the global artificial intelligence boom, and a defence budget that has nearly doubled to about 8% of GDP. Government bonds have returned roughly 30% over two years. Yet foreign investors have grown wary, and their holdings of Israeli equities have fallen to a record low.
Some see clear upside in a change of leadership. Bill Ackman argued that a government without the far-right ministers Itamar Ben-Gvir and Bezalel Smotrich would signal a new page and could widen the Abraham Accords. Analysts at JPMorgan expect an opposition win to strengthen the shekel, while a Netanyahu-led government could weaken it. Others, like Sergey Dergachev of Union Investment, are simply buying bonds, betting that the economy's fundamentals will hold regardless of the outcome.
The costs are real. The war has cost the economy more than $55 billion, public debt is near 70% of GDP, and the deficit remains far above its pre-conflict level. The central bank governor has warned that Israel must protect its fiscal room.
History offers some comfort. Tel Aviv Stock Exchange research shows that markets typically recover from post-election jitters within a month, and that the year after past votes has often been strong. The greater risk, many investors say, is not who wins but how long it takes to form a government.
Israel votes on Tuesday in an election that polls describe as tight, and the country's financial markets, which have climbed through three years of war and political upheaval, are being asked to price a possible change of government. Neither Prime Minister Benjamin Netanyahu's Likud bloc nor an opposition alliance built around former military chief Gadi Eisenkot is expected to reach the 61 seats needed to govern in the 120-seat Knesset.
The rally itself has several sources. Analysts credit Israel's technology sector and the global boom in artificial intelligence. Defence spending, which has nearly doubled to about 8% of GDP, has also helped. Government bonds have returned roughly 30% over the last two years, more than double the main emerging market indexes.
Both Netanyahu and Eisenkot have promised to keep up pressure on Hamas and Iran, so investors are looking at the other differences between them. JPMorgan estimates the shekel could move by as much as 3% depending on the result. In its view, an opposition win that repaired relations with Western allies and stopped the judicial overhaul that set off mass protests in 2023 could strengthen the currency, while another Netanyahu-led government could weaken it.
Some voices are explicit about the upside. Billionaire investor Bill Ackman, who stopped short of backing a candidate, said a government without far-right ministers Itamar Ben-Gvir and Bezalel Smotrich would show Israel was turning a new page. He said that could help rebuild its international credibility and widen the Abraham Accords with neighbouring countries. Rafi Gozlan, chief economist at IBI Investment House, 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 re-election might raise the chances of further escalation with Iran, while a defeat might be read as easing tensions.
That does not mean investors expect Israeli assets to fall if Netanyahu stays. Stocks and bonds have held up through years of war and turmoil. Sergey Dergachev of Union Investment has been buying Israeli bonds ahead of the vote, betting the economy and the companies he favours will stay fundamentally strong. He said bonds are less prone to big swings and that the region's intertwined conflicts should eventually ease.
Foreign investors nonetheless remain wary. Copley Fund Research data show the share of global funds holding Israeli equities is at a record low, down sharply since 2023. Christopher Granville of TS Lombard cited central bank estimates that the war had cost the economy more than $55 billion by last year, equal to 8.6% of 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 head Amir Yaron said last week that, given the Iran war, Israel must preserve adequate fiscal policy space.
Some investors see the biggest danger as an inconclusive result that drags out political uncertainty and delays budgets, reforms and investment. History suggests the damage is usually brief. Tel Aviv Stock Exchange research covering the last 10 elections found volatility in leading share indexes rose by as much as 45% in the weeks after voting, compared with a typical week. Initial losses were typically recovered within a month, with an average gain of about 1.7%. In the year after elections, the TA-125 returned an average of 16.4%, against a long-term annual average of 11.5%. Nissan Avraham, an analyst in the exchange's research unit, said deadlock often weighed on stocks before a vote but the effects typically faded within months.
Lior Yochpaz, chief investment officer at insurer Menora Mivtachim, said businesses have kept thriving through the political upheaval, judicial overhaul proposals and regional conflict, helped by a relatively business-friendly environment. For some, the cleaner trade lies elsewhere. Jean-Charles Sambor of TT International said an opposition win or a weakened Netanyahu government could ease regional tensions and benefit Lebanese bonds, which he called a good proxy. With neither bloc expected to reach 61 seats, the question after Tuesday may be less who wins than how long it takes to form a government.
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
The best way to play it for us is through other Middle East countries, and for us Lebanon is a good proxy.— Jean-Charles Sambor, TT International
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War & Conflict