Tel Aviv shares suffer moderate decline after Iran’s unprecedented attack on Israel
Major share indices drop less than 1% while defense shares gain; investors will be closely watching the potential threat of a wider regional conflict
Sharon Wrobel is a tech reporter for The Times of Israel.
Shares on the Tel Aviv Stock Exchange on Sunday slid moderately as investors await Israel’s response to Iran’s first-ever direct drone and missile attack on the country.
Tel Aviv Stock Exchange’s benchmark TA-125 index slipped 0.7% and the TA-35 index of blue-chip companies fell 0.6% in early afternoon trading. The TA-90 index, which tracks the shares with the highest market capitalization not included in the TA-35 index, dropped 0.9%, and the TA-Insurance & Financial Services index was down 1.6%.
“The market reaction is slightly negative but not hysterical, as an attack from Iran was anticipated,” IBI investment house chief economist Rafi Gozlan told The Times of Israel. “Investors are now in a wait-and-see position to see how Israel will respond to the Iranian attack and whether it stays a tit-for-tat situation or develops into a wider regional escalation.”
“Investors will also be closely watching to see if the Israeli government will continue to align with the regional collective coordination that helped to defeat the Iranian attack and strengthen ties with the US following the tensions in recent weeks over the war in Gaza,” Gozlan added.
Numerous Western countries, including the US, the UK, Canada, Germany, Denmark, Norway, the Czech Republic, and Argentina on Sunday condemned Iran’s unprecedented assault on Israel and expressed strong support for the country after Teheran fired a wave of around 300 projectiles from its territory, comprising 170 drones, 30 cruise missiles, and 120 ballistic missiles. The attack triggered air raid sirens throughout Israel early Sunday.
The Israeli army said 99% of the projectiles had been intercepted by Israeli and allied countries’ air defenses, including the US, Britain, France and Jordan. The attack injured one Israeli, a 7-year-old girl in a Bedouin town in the south, and caused minor damage to an airbase.
Economists at Bank Hapoalim said that fending off last night’s attack is “bad news” for Israel’s defense spending and its fiscal situation in general.
“The cost of each such day is probably several billion shekels, and the escalation of the conflict with Iran will probably justify a further increase in defense spending in the coming years,” Bank Hapoalim economists wrote in a research note.
“Israel’s geopolitical and fiscal risks are rising in the short term, and this means that the chances for a credit downgrade of Israel’s country rating are increasing,” they cautioned.
Shares of defense companies such as Elbit Systems jumped almost 4%, and Next Vision gained almost 5%, amid investor expectations for increased demand for their products during times of heightened geopolitical tensions.
The US and Israel had been bracing for an attack for days after Iran said it would retaliate for an alleged Israeli strike in Damascus this month week that killed seven IRGC members, among them a senior Quds Force commander, Brigadier General Mohammad Reza Zahedi.
“Stocks and the shekel were already under pressure in the last couple of days as investors were pricing in the risk of an expected attack by Iran,” said Gozlan.
Last Monday, the Bank of Israel decided to err on the side of caution and held interest rates for a second consecutive meeting at 4.5 percent, citing heightened regional tensions amid threats by Iran to respond to the alleged assassination by Israel of the top Islamic Revolutionary Guard Corps officer in Syria.
Last week the TA-90 index dropped 2.3% and the TA-125 index was down 1.1%, while the shekel weakened about 1.2% against the dollar, according to Tel Aviv exchange data.
