Israeli stocks yawned widely on Monday as Benjamin Netanyahu
ended his record-breaking 12-year run as Israeli Prime Minister and the country welcomed a new government. While this is a shock to the country’s political system, a Middle Eastern policy expert at Brookings expects the country’s economic recovery to continue unabated.
By 60-59, Israel’s parliament on Sunday approved an unlikely government coalition led by Nationalist and tech millionaire Naftali Bennett and formed by parties of the right, left, centrists and Islamists. Despite their conflicting political ideologies, the new coalition shared the desire to topple Netanyahu and pledged to focus on economic recovery from the coronavirus pandemic.
While the departure of Israel’s longest-serving leader is certainly a historic event for the country’s political scene, the new government is unlikely to change much of the country’s economic course, said Natan Sachs, director of the Center for Middle East Policy at Brookings. “It’s definitely a drama,” Sachs says, “But in economic terms, we don’t expect huge changes.”
Tel Aviv index 125,
composed of the 125 most capitalized companies listed on the Tel Aviv Stock Exchange, rose 0.2%. US-listed funds focused on Israeli stocks also posted gains. the
IShares MSCI Israel ETF
(ticker: EIS) closed 0.9% higher, the
VanEck Vectors Israel ETF
(ISRA) rose 0.6%, the
BlueStar Israel Technology ETF
) gained 0.7%, and the
ARK Israel Innovative Technology ETF
(IZRL) rose 1.4%.
The new government, similar to the previous one, will likely stick to the doctrine of the free market and deregulation, Sachs says. Rather than a specific economic policy change, the bigger change would be a return to functioning government and, hopefully, more political stability.
Israel has held four elections during the political crisis in the past two years. The country is currently operating without a state budget, which means it cannot start large government projects. The first task of the new coalition would be to adopt the new budget for 2021 and 2022, says Sachs. If successful, that would bring the kind of stability that Israel lacks.
With such a slim margin of victory and so many diverse parties under one roof, the new coalition looks fragile. Already, Netanyahu plots a comeback and intends to challenge the new government on issues that could divide it.
Even if political instability persists, such risks are already built into stocks and are likely to have less impact on Israeli asset prices than some other countries, Sachs says.
The country’s economy is heavily dependent on foreign investment and exports, with a strong focus on the technology sector, which is not very sensitive to political instability. “Keeping the infrastructure running smoothly is very important, but it won’t affect the immediate bottom line for many tech companies,” says Sachs.
Regardless of the change of government, Israeli stocks have increased this year as the successful deployment of the Covid-19 vaccination in the country has allowed it to open relatively early, thus aiding Israel’s post-pandemic economic recovery. The small country, with around nine million people, has fully immunized nearly 60% of its population this week. The Bank of Israel predicts that the economy will grow 6.3% this year. The TA-125 index is up 13% since the start of the year.
Foreign money has gushed into Israel’s high tech and pharmaceutical sectors over the past decade. The trend did not accelerate until 2021, as global investors seek new opportunities after last year’s rally left many US stocks, especially in the tech and media sectors, with expensive valuations. In the first three months of the year alone, Israeli tech companies raised nearly $ 5.5 billion, more than half of the total they raised last year. About 30 companies were the subject of initial public offerings on the Tel Aviv Stock Exchange in the first quarter, raising a total of around $ 910 million.
Write to Evie Liu at [email protected]