Shekel Falls 2% and Tel Aviv All-Share Index Drops 2.46% After Election
Key Facts
The shekel fell 2% against the dollar on October 28, its biggest daily decline in two weeks, while the Tel Aviv All-Share Index closed down 2.46% at 4,007.01 points, according to The National. The currency and share declines coincided with preliminary projections showing that Benjamin Netanyahu's coalition had failed to secure a parliamentary majority. The Associated Press said the coalition fell short of the 61-seat threshold, after holding 68 seats in the previous parliament. The shekel's move quickly reversed gains from the previous day, as Wednesday's drop erased Tuesday's advance, which had come after strong voter turnout boosted investor expectations of a change in government. The Tel Aviv Stock Exchange was closed on election day Tuesday, according to The National.
The decline extended across different segments of the stock market: the blue-chip TA-35 index fell 1.81% to 4,130.36 points, while the TA-90, which tracks smaller companies outside the first index, dropped 4.47%. The All-Share Index fell 2.46%, not about 3% as reported in some brief coverage, while the blue-chip index's decline was no more than 1.81%. These figures put the indexes' performance in a more detailed context than the overall market move, with smaller companies recording the biggest fall among the three indexes cited. The National linked the currency and share declines to the outlook for the next government, while an emerging-markets economist at Capital Economics said Israeli financial markets reacted negatively to the preliminary result. The economist added that the next government is likely to be fragile.
Coalition arithmetic reflects the narrow options facing both camps. The Associated Press said Arab parties could win about 19 of the 120 seats, potentially giving Gadi Eisenkot a route to oust Netanyahu through a partnership with them. But the agency noted that this option could be politically costly and alienate other opposition factions, even though Eisenkot said he was open to cooperating with them to reach a majority. The Likud, meanwhile, appeared to be the largest party, but Netanyahu would need the support of at least one opposition party or defections by opposition lawmakers to govern. Preliminary projections therefore did not settle which path could produce a government, while the agency said the inconclusive results reflected deep divisions in Israel.
The election, Israel's first since Hamas's attack on October 7, 2023, was described by the Associated Press as a pivotal moment and a referendum on Netanyahu's nearly continuous rule for about 17 years. Turnout reached nearly 78% of eligible voters, the highest since 1999, according to the agency. Even so, Likud's share of the vote fell compared with the 2022 election, when it was 23.4%. The contrast between high turnout and the party's lower vote share stood out as projections left Netanyahu's coalition without a parliamentary majority. Turnout had lifted some investors' expectations of a change in government before the currency erased its gains in the next session.
On the economic front, Capital Economics said the election is unlikely to have a major effect on near-term growth expectations or the fiscal path, but could have significant implications for the economy over the medium term. The International Monetary Fund had forecast in its July assessment that Israel's gross domestic product would grow 3.5% in 2026 and 4.4% in 2027, assuming the regional ceasefire holds. The fund cut its 2026 forecast from 4.8% before the war in the Middle East, citing a sharp contraction in the first quarter. It also expected defense spending to remain high, while military mobilization and reduced availability of non-Israeli workers constrained labor supply. These estimates place the economic outlook against a backdrop of existing challenges, while economists see the election's effects as potentially clearer over the medium term.
Final official results are expected on Thursday or Friday, according to projections cited by the Associated Press on Wednesday, while coalition talks could last for weeks. In an update on October 29, the agency said results could come as early as Thursday evening after about half a million absentee ballots were counted, with no expectation that they would significantly change the outcome. President Isaac Herzog is due to task someone with forming a government the following week. If multiple attempts to form a government fail, Israel could face a new election in early 2027. The blocs' ability to assemble a majority remains central to the next political phase, as markets follow the government-formation process after Wednesday's decline.