Tel Aviv shares slide as Israel-Hamas war enters 2nd week and fighting intensifies

In week of Hamas onslaught, shekel drops to weakest level since early 2016, approaching NIS 4 per dollar; economist expects war to last at least two months

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

The Tel Aviv Stock Exchange, December 25, 2018. (Adam Shuldman/Flash90)
The Tel Aviv Stock Exchange, December 25, 2018. (Adam Shuldman/Flash90)

Tel Aviv shares dropped on Sunday as Israel enters the second week of fighting following the murderous assault on its border communities launched by Hamas, and with the Israel Defense Forces gearing up for a ground operation to destroy the terrorist organization in the Gaza Strip.

The TA-35 stock index of blue-chip companies and the benchmark TA-125 index, both declined about 3.6%, and the TA-90 index — which tracks the shares with the highest capitalization not included in the TA-35 index — sank 3.8% in afternoon trading in Tel Aviv. The TA-Bank index of the five largest banks slipped around 4% and construction, building and insurance stocks were down between 4% and 5%.

Since the devastating onset of the shock onslaught launched by the Hamas last Saturday, in which 1,300 were killed in Israel, some 1,000 of them civilians, and 150-200 were kidnapped by terrorists, the shekel has dropped more than 3% against the US dollar trading around 3.97 per dollar on Friday, its weakest level since February 2016.

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

In the week following last weekend’s murderous attacks on southern Israeli communities, the TA-35 index and the TA-90 index plunged 6.4% and 7.3%, respectively, according to Tel Aviv Stock Exchange data.

The so-called “fear index,” the VTA35, which measures the market’s expectation of 30-day volatility implied by at-the-money Tel Aviv 35 Index options, more than doubled to 28 points, the highest level since March 2022, the TASE said.

“There is great uncertainty about the duration of the fighting, the degree of escalation (regarding the northern border in particular) and when we will return to a state of ‘calmness,” said Jonathan Katz, chief economist at Leader Capital Markets.

An apartment building hit by a rocket fired from the Gaza Strip by Palestinian terrorists in the southern city of Ashkelon, October 9, 2023. (Chaim Goldberg/Flash90)

Before the outbreak of the war, Leader Capital forecast for the economy to expand at a rate of 3.4% in 2023 and 1.5% in 2024, that is about 5% cumulatively.

“Now it seems more likely to expect 2.3% this year and 1.7% in 2024, or about 4% in the aggregate, which means a cumulative damage of about 1% to GDP,” said Katz.

Leader’s forecast assumes that the fighting in Gaza will include a ground operation lasting about two months, but does not take into account the potential outbreak of hostilities with Lebanon-based Hezbollah and other terrorist groups on Israel’s northern borders.

In a report last week, credit ratings agency Moody’s Investors Service warned that the Israeli economy, which it said has shown resilience to terrorist attacks and military operations in the past is likely to be challenged in the coming weeks.

“A prolonged conflict that durably and significantly impairs economic activity and policymaking would test that resilience,” said Moody’s. “Therefore, how this conflict affects credit risk across the public, financial and corporate sectors will depend on its scale and duration, which is far from clear at this time.”

“The conflict could have global macroeconomic consequences as well,” it was added in the report.

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