Shares, Government Bonds Fall as Judicial Overhaul Plans Dampen Investor Sentiment

On Sunday, shares in Israel dropped and recent days have also seen the country’s currency weaken due to rising investor concern about the judicial overhaul proposed by the new government.

In addition, there was also a deadly terror attack in Jerusalem that saw ten people lose their lives and three others wounded.

The decline

On Sunday, there was a 2.1% drop in the benchmark TA- 125 index of the Tel Aviv Stock Exchange, while the index of blue-chip companies i.e. the TA -35 index dropped by 2%.

There was also a 1% decline in the prices of longer-term government bonds. This was after Wall Street saw its shares close a strong week on Friday with good gains.

While there is no trading of the Shekel on Sunday, the Israeli currency has weakened in the last two trading days against a basket of other currencies, such as the US dollar, by almost 2%.

This dampening in investor sentiment comes as the chiefs of Israeli banks warned Prime Minister Benjamin Netahyahu on Friday about the potential economic fallout from the judicial overhaul proposals.

The premier said that he was open to dialogue, but also added that he would not make any efforts of slowing down the said makeover of the judiciary.

The warning

Netanyahu had had a meeting with the heads of a number of banks in Israel as well as businesspeople in order to push back against an increasing number of warnings from senior economists and business leaders.

There are concerns that investors have already begun to withdraw their funds from Israel. Israeli markets in recent years have been mostly resistant to local security-related and political events.

They have been strongly correlated to the events in global markets instead, but global investment houses and analysts are now cautioning that investor sentiment is taking a hit due to the planned measures.

The impact

Economists at Leader Capital Markets and Bank Hapoalim said that government bonds have seen their prices drop sharply.

This is primarily over news that foreign investors have started to take their money out of the country because of the makeover of the judicial system that the right-wing government is planning.

There has also been a significant weakening in the price of the shekel and share sale in local markets have also taken a hit.

Rafi Gozlan, the chief economist at IBI Investment House Ltd. has also seen sentiment in the local market go down from the middle of last week.

This was after a warning was issued by Amir Yaron, the Governor at Bank of Israel, to the Prime Minister about investors being scared away and the negative impact on the credit rating of Israel.

Yaron and Netanyahu had had a meeting in the previous week after the former returned from Davos, Switzerland, where he had gone to attend the annual WEF (World Economic Forum) conference.

He had met with heads of global central banks, senior business executives and ratings agencies. Goldman Sachs has also warned about the consequences for the shekel due to the domestic developments.