Why is the TASE soaring and shekel strengthening?

The Tel Aviv Stock Exchange has changed direction over the past week and the shekel has been gaining strongly. Since the start of the month the Tel Aviv 35 Index has risen by 8% including 5.26% over the past two sessions while the Tel Aviv 125 Index is up 8% since July 9 including 4.66% over the past two sessions. The shekel has appreciated sharply over the past few days and is at its strongest against the dollar since mid-June, partly due to the weakness of the US currency worldwide, and has not depreciated against the euro, which has been strengthening worldwide.

Even so, the underperformance of the TASE, especially against the Wall Street indices, is still substantial. Since the start of 2023, the Tel Aviv 35 Index and Tel Aviv 125 Index have each risen by about 5% compared with 18.6% for the S&P 500 and 37% for the Nasdaq.

The positive trend on the TASE and the strengthening of the shekel in recent days are receiving a tailwind from the continuation of the positive trend on Wall Street, partly due to the encouraging inflation data published recently in Israel and around the world. In Israel it was announced last Friday that the Consumer Price Index (CPI) was unchanged in June and the annual inflation had dropped to 4.2%. In the US, it was announced last week that the annual inflation rate dropped to a two-year low, from 4% in May to 3% in June.

Reports of talks to “soften” the reasonableness standards bill, which if enacted would curb the Supreme Court’s ability to review decisions by the executive branch, have also supported gains on the TASE and the strengthening of the shekel.

Meitav investment house chief economist Alex Zabezhinsky says, “Except for the rises on the US stock markets, there has been no economic data that could explain the rises on the TASE.

“It should be taken into account that the local stock market has been strongly underperforming since the start of the year. Therefore, investors are looking for reasons for the gains. Any interpretation of political developments that leads to the conclusion that the worst is behind us leads to increases in the stock market. Have we really passed the bottom in terms of political events and can it not get any worse? That is a difficult question to answer.”

“Reports on dialogue will fuel the market”

A source in the forex market told “Globes,” that a change of sentiment has been felt among foreign investors. “It seems that all of a sudden they have fallen in love again with the shekel. Suddenly they don’t care about the legislation and they are certain it is just a passing phase.”

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Noam Meirovich, a senior portfolio manager at Migdal Capital Markets says, “Since the start of the year, the local market has been underperforming compared with most markets in the world due to political influences, and the shekel has also been showing a trend of weakness over this period. In this scenario, it is clear that there will be standard deviations. In recent days, news has been published about political contacts taking place behind the scenes, which aim to hold talks between the parties, and this something that will fuel the market, whose level of liquidity is relatively low.”

He adds, “There is no significant news that can provide an explanation for the increases, and it could be that market players are re-managing their positions. It is not impossible that there was a short squeeze that pushed the market up.”

“It’s reasonable to expect the market will be volatile in the coming period

However, Meirovich stresses, “In recent months, we have already seen several times moves of significant price increases for a few days, which were recorded due to positive news published in connection with the politicians’ talks, and later the market returned all the way back down, which may happen this time too.”

Mizrahi Tefahot Bank chief economist Ronen Menachem told “Globes,” “Since the economic data and employment indicators in the economy are good, all this can be linked to the question marks surrounding the judicial legislation. In the market, many experts, including the rating companies and the Bank of Israel, have assessed the considerable effects that legislation without broad consensus could have on both economic activity and investor sentiment. Therefore, when there are time breaks between bills and legislative moves, such as these days between the first, second and third reading of the reasonableness standards bill, the market is thirsty for positive headlines, which will lower the level of concerns.”

However, Menahem says, “It should be noted that in view of the ongoing relationship between the legislative moves and the twists turns around them – in each direction – together with the continuation of the protests and the fast approach of the aforementioned second and third readings dates, it is likely that the market will be volatile in the coming period. Later, if the basic economic data of the economy will play a bigger role, there is potential for continued increases.”

Published by Globes, Israel business news – en.globes.co.il – on July 20, 2023.

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