In a remarkable show of resilience, Israel’s economy is not just withstanding the pressure of war with Iran—it’s thriving.
On Sunday, the day after the US attacked nuclear sites in Iran, the Tel Aviv Stock Exchange (TASE) surged to an all-time high, as markets responded positively. The broad Tel Aviv 125 index rose 1.3%, while the blue-chip TA-35 index climbed 1.2% in early trading.
Investor confidence is rising on the back of Israel’s military momentum and growing speculation over possible political shifts in Tehran. Following the attacks, the TASE closed its best week since May 2020, with 38 of the 55 stock indexes under the TASE’s index hitting all-time highs.
But with regional and global tensions at a peak, many observers are left scratching their heads: How is it possible for a country under such threat to see its markets soar?
Matthew Salter, the former trade director at the UK Embassy in Tel Aviv, told Jewish News: “It will be almost incredulous to many, that given the war headlines and photos coming out of the region, that markets would be showing signs of euphoria. Indeed, markets in Israel are up for the year by about 20% and 10% just over the last month alone.
“It would seem that the markets are pricing in a scenario of upcoming stability and possibly an era of new opportunities in the Middle East. It is true that the rating agencies have sounded more of a note of caution over the last couple of weeks in the eventuality that the war drags on for an extended period of time, but for now investors into Israeli companies are signalling an optimistic belief that there will be a quick and positive outcome to the conflict.”
Professor Asher Blass
Professor Asher Blass, owner of Economic Research and Consulting Group (ERCG) and former chief economist at the Bank of Israel, said: “It appears that investors feels that what has happened over the past year or so with the Israeli markets and industries provides a significant investment opportunity.
“If you look at the different industries, the stock prices of construction companies have performed well and investors seem to be optimistic about defence stocks. It is possible that AI and cyber, which seem to have contributed to the success of the military mission, may also be attractive going forward.”
He cautioned that “care needs to be taken to make sure that the budget deficits gets under control and the next few weeks will resolve some of those issues.
“If we look at past conflicts like with Iraq where the price of oil took off substantially, this doesn’t appear to have happened this time.”
Israel’s general stock index surged 6.1% over the past trading week—marking the strongest opening-week performance during any war or military operation in Israel’s history.
But can the Israel economy withstand a prolonged and escalated war with Iran? “This depends on if it becomes like with the Houtis, where there is a missile once every 10 days or if it’s 10 missiles a day,” notes Professor Blass, “but defence experts seem to be saying that Iran will not have the capacity to do that for an extended time.”
The shekel was the world’s strongest performing currency last week and has since jumped up again, while stocks and bonds have also posted gains. Investors appear increasingly willing to look beyond the escalating conflict with Iran, reassessing the long-term risk profile of Israeli assets with a more favourable outlook.
Modi Shafrir, Bank Hapoalim
Modi Shafrir, chief strategist, financial markets, Bank Hapoalim, explained: “History teaches us that the Israeli economy rebounds quickly from war/military events – a fact that, combined with expectations of the Iranian nuclear threat being removed at the end of the war (by military means, or diplomatic), should support good economic growth later in the year – reflected in the decline in Israel’s risk premium, and the gains in equity markets last week.
“The markets are not looking at the short-term but the anticipation of a ‘new Middle East’ with a reduced threat from Hamas, Hezbolah and Iran, and a further decline in Israel’s risk premium when the war ends. The market is looking at the strength of the Israeli military and the fact that the US is also behind Israel has provided a great boost to Israel and the markets are reflecting this.”
