Shekel Falls 2% and Israeli Stocks Slide as Election Majority Remains Unclear
Key Facts
The shekel fell about 2% to 3.1185 against the dollar in trading on Wednesday, October 28, and was on track for its worst daily performance in 16 months, according to a Reuters report published by The Edge Malaysia. In the stock market, the TA-90 index fell about 3%, while the TA-125 dropped 1.7% and the TA-35 fell 1.5%, according to The Times of Israel. The moves came after Tuesday’s election, with results still preliminary and the shape of the next government unclear. Declines did not exceed 2% across all assets; the indices fell by different amounts, while the shekel dropped about 2%. The Times of Israel quoted the chief market economist at Mizrahi Tefahot Bank as saying investors were waiting for the final results and that “there is still no clear direction on the composition of the next government.”
With about 71% of votes counted, Israeli media projected Netanyahu’s bloc would win 54 seats, compared with 47 for the opposition bloc led by Gadi Eisenkot and 19 for Arab parties, Reuters reported. Neither bloc was expected to reach 61 seats, the threshold for a majority in the 120-seat Knesset. The estimates put Arab parties in the calculus of coalition formation, without resolving the outcome of negotiations or the composition of the government. The Associated Press said neither bloc appeared poised to win a majority and that Netanyahu remained caretaker prime minister. Reuters had reported that final results were expected on Thursday, while the Associated Press expected them to be completed by the end of the week.
Stock losses varied across indices and sectors; the insurance index fell 4.1%, while market coverage showed losses in insurance, construction and real estate shares. The TA-90 posted the steepest decline among the three indices cited, at about 3%, compared with 1.7% for the TA-125 and 1.5% for the TA-35. The Times of Israel linked market moves to political uncertainty, while a Capital Economics emerging-markets economist said the next government “will probably be fragile.” The economist added that the preliminary results leave more paths for Netanyahu to remain in power, but any government formed “is unlikely to be strong.” The chief market economist at Mizrahi Tefahot Bank said initial reactions in the foreign-exchange market “should be treated with caution.”
Wednesday’s decline followed a rise in the shekel on Tuesday, after strong turnout data boosted the likelihood of a change in government, before the currency gave back those gains in the following day’s trading, according to a Reuters report. Turnout reached 77.7% of eligible voters, the highest since 1999, according to the Central Elections Committee’s final update cited by the Associated Press. The election took place against the backdrop of the fallout from the Hamas-led October 7, 2023 attack, the agency reported. Assessing investors’ reaction, the chief market economist at Mizrahi Tefahot Bank said they might welcome economic clarity and market-friendly policies. But investors, according to the same remarks, were still waiting for the final results and clarity on the shape of the next government.
President Isaac Herzog said he would receive the official results the following week, then begin consultations with each faction to nominate a candidate to form a government, according to the Associated Press. He added: “I will receive the official election results next week, and then I will begin the consultation process here, listening to every faction.” The agency reported that final results were expected to be completed by the end of the week, while Reuters said they were expected on Thursday. Until the official results emerge, the seat distribution in media estimates remained based on a partial count of about 71% of votes. With neither bloc reaching the 61-seat threshold in those estimates, coalition consultations remained the next political step investors were watching.