In a shocking turn of events, the fallout from Saturday’s surprise attack on Israel by the Palestinian group Hamas has sent shockwaves through Middle East markets, triggering a sharp decline in stocks and setting the stage for a week of potential volatility.
On Sunday, major equity indices across the region experienced substantial losses, with Israel’s benchmark TA-35 stock index taking the hardest hit, plummeting by 7%, marking its most significant drop in over three years. Riyadh’s Tadawul All Share Index also fell by 1.2%, while stocks in Qatar and Kuwait weakened. Egypt’s EGX30 gauge saw a staggering decline of up to 5.4%.
The Hamas assault represents the deadliest attack on Israel in decades and raises concerns about the escalation of a broader conflict. Israeli Prime Minister Benjamin Netanyahu has announced a prolonged military campaign against the militant group, expressing confidence in Israel’s ability to prevail. President Joe Biden has pledged “rock-solid” support from the United States for Israel.
This conflict unfolds against a backdrop of diplomatic sensitivity and internal divisions within Israel regarding Netanyahu’s coalition with the far-right and their efforts to overhaul the nation’s judiciary. In recent days, the Israeli shekel has slumped to a seven-year low, just ahead of the scheduled reopening of Israel’s parliament later this month.
Hasnain Malik, a strategist at Dubai-based Tellimer, a provider of research and data on emerging markets, remarked, “Divisions in Israel’s politics and security structure will be papered over while the military response in Gaza is ongoing, but they are not going away. That will remain a vulnerability for all Israeli asset prices.”
The significant losses in Israeli stocks have brought attention to the Tel Aviv exchange’s trade-suspension rules. An 8% decline in the TA-35 Index triggers a 30-minute halt, while rules stipulate that a 12% drop would lead to a full-day closure unless management decides otherwise.
Experts anticipate that the war in Gaza will have a more profound impact on Israeli markets compared to previous military operations. Should the conflict escalate further, Israel’s economy is likely to suffer from reduced private consumption and decreased private and public investments.
Ori Greenfeld, Chief Strategist at Psagot Investment House, warned, “If Israel needs to make decisions that are not necessarily aligned with the international community, there could also be a drop in international investments and in Israel’s trade relations with different countries. This might also affect the shekel, which we expect to see weaken.”
Hamas’s incursions into Israel come at a delicate juncture as Netanyahu’s efforts to weaken the judiciary have sparked mass protests and rattled foreign investors. The shekel has already suffered losses this year, ranking among the worst performers among 31 major currencies tracked by Bloomberg.
Netanyahu’s plans for greater regional integration with Arab and Muslim neighbors now face a severe test. Israel is engaged in negotiations with the US and Saudi Arabia for a complex three-way deal, involving Washington providing security guarantees to Riyadh in exchange for normalization of relations with Israel. Additionally, Israel has been in discussions with Turkey and other nations regarding gas exports to Europe and trade corridors from Asia.
The ongoing conflict has tragically resulted in hundreds of casualties on both sides. Palestine suspended trading on its stock exchange on Sunday, citing “security conditions in the Palestinian territories,” with plans to reopen on Monday.
Photo Credit : Muhammed Sabry
7th October, 2023
Delino Gayweh
Serrari Financial Analyst
