Tel Aviv shares plunge amid fears of prolonged war

Major stock indices drop more than 6%, bank and insurance stocks suffer losses of around 9% after Hamas assault kills hundreds of Israelis

Sharon Wrobel is a tech reporter for The Times of Israel.

The empty Mahane Yehuda market in Jerusalem, amid heavy fighting between Israel and Hamas in Gaza, on October 8, 2023. (Noam Revkin Fenton/Flash90)
The empty Mahane Yehuda market in Jerusalem, amid heavy fighting between Israel and Hamas in Gaza, on October 8, 2023. (Noam Revkin Fenton/Flash90)

Shares on the Tel Aviv Stock Exchange slumped on Sunday as investors braced for uncertain times and fears of substantial damage to Israel’s economy after an unprecedented surprise attack on Israel was launched by the Gaza Strip’s Hamas terror group.

The TA-35 stock index of blue-chip companies dropped 6.4 percent, the benchmark TA-125 index fell 6.2% and the TA-90 index, which tracks the shares with the highest capitalization not included in the TA-35 index, was also down more than 6%. The TA-Bank index of the five largest banks dived 7.8% and construction, building and insurance stocks plunged between 8% and 9%.

The multifront assault by Hamas, including infiltrations by land, air, and sea, hit the country on Saturday, when Jewish Israelis marked both Shabbat and the Simhat Torah holiday. Prime Minister Benjamin Netanyahu prepared Israelis for tough days ahead as the nation retaliates for the shocking attack and subsequent battles, which have left hundreds dead and turned sleepy border towns into a war zone.

Ori Greenfeld, chief strategist at Psagot Investment House, warned that compared to previous military conflicts and operations conducted in the south in recent years, which had a minimal effect on the local financial market, the war that was triggered over the weekend is expected to have a more substantial impact.

“The reason for this is that the financial markets are ultimately the source of the Israeli economy, and if in the previous operations in the south the Israeli economy was not substantially harmed, then today such a scenario is too optimistic,” said Greenfeld. “If in the past the reaction in the markets was for a day or two at most, it is likely that this time we will see the local markets having difficulty recovering quickly.”

Netanyahu vowed to bring the full force of the Israeli military against the Hamas after more than 300 people were killed, many of them civilians, and over 1,800 were wounded. During the fighting in the south, hostages were taken by Hamas and presumably brought to Gaza.

Rubble is seen in central Tel Aviv after a rocket fired from Gaza hit a building on October 8, 2023. (Avshalom Sassoni/Flash90)

On Sunday morning, over 24 hours after the coordinated assault began, security forces were still struggling to clear terrorist cells entrenched within devastated communities. Sirens were heard across Israel, from Tel Aviv to Jerusalem and all over the south of the country, as rocket attacks from Gaza persisted overnight, keeping civilians holed up in their homes, while schools and kindergartens were shut on Sunday, and most international airlines canceled their flights to Israel. Furthermore, many businesses, sport centers and gyms across the country remained closed on Sunday.

Greenfeld saw the expected damage to the economy coming from two fronts.

“First, it is likely that the war in Gaza will last for a long time, a period in which it can also be assumed that a significant part of Israel will continue to be under missile threat,” he said. “Such a threat will cause the Israeli consumer to go out less and naturally cut consumption.”

“Beyond that, in a period of such heavy uncertainty, it is likely that the volume of investments in the economy, both of the private and public sectors, will also decrease,” he added.

The war is also expected to have a negative impact on Israel’s image in the world, which has already been harmed by the advancement of the government’s contentious judicial overhaul.

Psagot Investment House chief strategist Ori Greenfeld. (Courtesy)

“Israel finds itself in a situation where it may be forced to make decisions that will not necessarily be acceptable to other countries in the world,” said Greenfeld. “Decisions of this type, as necessary as they may be, may only further damage the perception of Israel in the world.”

In such a situation, the flow of international investments into Israel and trade relations with recent countries may be dented, which could have an impact on both economic activity and the stability of the local currency, according to Psagot. The Israeli shekel already hit a seven-year low against the US dollar last week amid heightened uncertainty over the judicial overhaul.

“Therefore, it is likely that in the near future we will see the shekel weaken against the dollar and against other currencies,” said Greenfeld.

The foreign exchange market is closed on Sunday and will fully reopen on Monday.

Times of Israel staff contributed to this report.

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