Why Israel’s stock market is ignoring economic forecasts

The metrics of the Israeli economy present a picture that seems incongruous with the uncertainty created by security events. 

The Tel Aviv Stock Exchange indices are climbing despite weak economic growth forecasts for Israel, the shekel is steadily strengthening, and demand for Israeli debt is high despite downgrades by credit rating agencies.

These and other points were discussed in the annual webinar held by the Profit Finance group, under the title “The Tel Aviv Stock Exchange Erupts,” with the participation of Profit Finance deputy CEO and chief economist Amir Kahanovitz, Victory supermarket chain CEO Eyal Ravid, and Erez Golan, head of the domestic debt issuance unit at the Ministry of Finance.

The speakers expressed a high degree of optimism about the Israeli economy. “We’re seeing the market repeating the way it has been in the past in previous security events.  The market is correcting sharply. The Tel Aviv 125 Index has risen 24% so far this year, which compares with European indices that have risen by 6%.” Kahanovitz said.

“In my view,” he added, “the greater drama has taken place in the shekel,” he added. “Between just before the war and now, it has strengthened against the basket of currencies by nearly 8%. Since the beginning of this year, it has strengthened against the basket by 4%.”

Kahanovitz explained that, when it comes to the forecasts about Israel, their pessimism focuses on what is happening and not on what will happen. “When someone constructs a growth forecast, he bases it on existing data and doesn’t take into account future events that could boost growth.” 

Developments expected to take place 

Kahanovitz referred to developments that took place after every military confrontation and said similar developments would take place once the current war was over. “In the past, Israel has succeeded in registering achievements, mainly in diplomatic cooperation with other countries. Israel’s standing in the world changed, and it was capable of leveraging that.”

He pointed out that the rehabilitation of the Gaza Strip would require the cooperation of European countries and the US and said that Israel would gain from it. “It’s not possible to rehabilitate the Gaza Strip without involving Israel. Israel will know how to turn that to its advantage,” he said.

“I’m optimistic,” he concluded. “I think the markets are too. It’s not for no reason that they’re soaring despite weak growth forecasts for Israel. The markets are more optimistic than these forecasts. I heard many people saying ‘let’s take our money out.’ In the past, that was a mistake.”

Erez Golan said that despite the credit rating downgrades that Israel has experienced in the current war for the first time ever, demand for Israeli debt remained high, both overseas and in Israel itself.

Debt rises overseas 

Golan explained the reasons for raising debt overseas while domestic debt raising had remained strong throughout the war. “Why issue debt overseas? It’s usually more expensive, and the reason for doing it isn’t always understood, but I can say that we need debt-raising channels that aren’t just local in case something happens.

“It’s our responsibility to ensure that there’s a back-up plan in the event that we can’t raise debt in the domestic market. The domestic market can’t always absorb the state’s needs.”

Golan stressed that, in order to raise debt overseas, it was necessary to ensure that the financial institutions there were familiar with the country. “It’s no easy matter to go and sell overseas if they haven’t seen you for years. You can’t simply come along and sell debt. But because, over the years, we have taken care to come to the markets, they know us, they follow us. We could do it, but that has helped a lot, especially at times of crisis.”