Bloomberg: Netanyahu’s talk of shelving parts of overhaul fails to win over investors

Experts say investors keeping an eye on developments do not believe PM’s talk of compromise will placate opposition or protesters, as shekel, foreign bonds fail to grow

File: Anti-judicial overhaul demonstrators protest the appearance of Economy Minister Nir Barkat, at a conference in the Tel Aviv Stock Exchange on July 10, 2023. (Avshalom Sassoni/Flash90)
File: Anti-judicial overhaul demonstrators protest the appearance of Economy Minister Nir Barkat, at a conference in the Tel Aviv Stock Exchange on July 10, 2023. (Avshalom Sassoni/Flash90)

Prime Minister Benjamin Netanyahu has so far been unable to reignite investor confidence with his ostensible pledge to limit the scope of his government’s controversial judicial overhaul proposals, the Bloomberg financial news service said Tuesday.

Netanyahu on Sunday indicated in an interview with Bloomberg that he would seek to pass the most contentious element of the plans — a bill to bring the appointment of new judges under near-absolute government control — by November, then shelve the other proposals in the legislative package. The premier said he would work for a compromise with the opposition on the legislation.

But according to a Bloomberg analysis on Tuesday, Netanyahu’s assurances that part of the overhaul will be shelved did not ease concerns, noting that a day after the interview Israel’s shekel and foreign bonds failed to make gains despite growth in the stock market.

Hasnain Malik, a researcher at the Tellimer financial brokerage firm, told Bloomberg that investors are on edge, including in light of “protesters, who still fear permanent damage to the country’s democracy.”

“All of that still makes for an unhelpful backdrop for Israeli asset prices,” he said.

Win Thin, global head of currency strategy at the Brown Brothers Harriman & Co.’s financial advice firm, said that investors are watching to see if Netanyahu’s remarks about seeking compromise will placate the opposition and end the protests.

“My sense is no,” he said.

Prime Minister Benjamin Netanyahu in an interview with Bloomberg from Jerusalem on August 6, 2023. (Screenshot: used in accordance with Clause 27a of the Copyright Law)

During his interview Sunday, Netanyahu brushed off warnings of economic fallout from the overhaul, urging foreign investors to continue to park their funds in the Jewish state.

“There’s noise in the short-term markets. There’s clarity in the long-term markets,” Netanyahu claimed. He added that Israel is an “undervalued” investment: “You should invest in Israel,” he said. “Smart money is coming into Israel now.”

While largely avoiding sitting down with Israeli news outlets, Netanyahu has been on an international media blitz in recent weeks, interviewing with NBC News, Fox News, CNN, ABC News, NPR, and others, in a global charm offensive apparently aimed at countering severe criticism of his government’s judicial overhaul plans.

A day after the government passed a law in late July that prevents judges from reviewing government appointments and decisions based on the doctrine of “reasonableness,” Israeli shares took a dive and the shekel weakened.

Business executives, startup founders, and employees have been at the forefront of mass protests against the changes to the judicial system advanced by the government. The concern is that the judicial overhaul plan undermines Israel’s system of checks and balances and its democratic character, which in turn, it is feared, threatens the country’s position as a stable hub for investments.

On Sunday, Bank Hapoalim chief strategist Modi Shafrir said hedge funds and asset managers were concerned about the effect the overhaul is having on Israel’s risk premium and the country’s credit ratings.

A sign for credit agency Moody’s is shown on August 13, 2010 in New York. (AP/Mark Lennihan)

On Thursday, Citibank lowered its forecast for Israel’s economy in 2023 and 2024, citing the plunge in investments over concerns about the impact of the government’s judicial overhaul and other policy decisions. The US bank reduced its 2023 growth projection for Israel from 3.3 percent to 3.1%, while the 2024 forecast fell from 3.3% to 2.8%.

After the passing of the “reasonableness” law, US investment bank Morgan Stanley cut Israel’s sovereign credit to a “dislike stance,” citing “increased uncertainty about the economic outlook in the coming months.” Global credit rating agencies Moody’s Investors Service and Standard & Poor’s issued warnings that the continued political turmoil around the judicial overhaul is posing risks to economic growth and social stability in Israel. However, for now, the agencies have not made any changes to Israel’s ratings since the latest legal passage.

Moody’s raised concerns about the slump in venture capital investments into local tech firms during the first half of the year, since the judicial plan was presented in early January, citing data showing that 80% of new Israeli startups chose to register overseas during the same period. Back in April, the credit rating agency lowered Israel’s credit outlook from “positive” to “stable,” citing a “deterioration of Israel’s governance” and upheaval over the government’s bid to dramatically overhaul the judiciary.

Sharon Wrobel contributed to this report.

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