"The best time to increase exposure to the Israeli market could be right around the start of a war with Hezbollah"
"The best time to increase exposure to the Israeli market could be right around the start of a war with Hezbollah"
Rising fears of a conflict with Hezbollah have led to increased volatility in the Tel Aviv stock market and reduced investor exposure. Analysts underscore the importance of a clear economic plan to manage the growing deficit and maintain confidence.
Amid rising tensions and fears of a large-scale conflict with Hezbollah, the Tel Aviv stock market has become increasingly volatile. Investors are reducing exposure to the Israeli market as analysts highlight the significant uncertainty surrounding the fiscal situation, potential impacts on the deficit, and the performance of local companies. Despite the risks, some see opportunities in the undervalued market. Experts emphasize the need for a robust economic plan to address the deficit and ensure investor confidence, particularly if an all-out war in the north materializes.
"The northern front is the main story. Regarding Gaza, we already know how to analyze it in terms of risks and implications. There is a very high level of uncertainty on the Lebanese front. That is why we see the Israeli market underperforming compared to abroad in the last month and a half," says Yotav Costica, CEO of More Mutual Funds.
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From left: Yotav Costica, Guy Mani, Dudi Reznik
(Photos:: Kfir Sivan, PR. Meitav Dash)
According to Costica, investors are reducing their exposure to the Israeli market, both private and institutional. "We also see this in basket funds whose main fundraising is in overseas funds. The investors are anticipating a war and do not wait for it to start."
"Everyone is on standby"
Guy Mani, chief investment officer at Meitav Investments, says that "there is great uncertainty, and the fiscal situation and its consequences on the deficit must be taken into account. That is why everyone is on standby. We do not know if there will be a war in the north, and even if there will be, how long it will last—will it be short or a few months, each such answer has different consequences."
Mani points out that he is not selling Israeli securities. "Already today, long-term savings are widely dispersed abroad—both in shares and in the non-tradable channel. At the beginning of the war, we saw an opportunity in the local market and increased our exposure. This is not what we are doing now, but we are also not selling Israeli securities. With the new funds that come to us, we simply divert a significant portion abroad," says Mani.
Opportunities amid risks
Despite the risks, there is also an opportunity: "The local market is cheap, whether it's the banks that trade around 0.8 on capital or companies that are attractively priced compared to their counterparts in the world. We have to remember that after wars, opportunities arise, and institutions know how to act against the trend. In my estimation, if there is an all-out war in the north, it will not last for a long period. Many parties have an interest in preventing such a situation, so there may also be opportunities," he adds.
Costica agrees that if a war in the north starts, it may be painful but relatively short: "Maybe the best time to increase exposure to the Israeli market would be right around the start of the war because I believe that if there is a war in the north, it will be hard but quick and short."
Dudi Reznik, an interest rate strategist at Leumi Capital Markets, adds that if the extreme scenario materializes and an all-out war begins in the north, local risk premiums are expected to continue to rise. "This scenario is expected to further increase the government deficit and burden local growth, mainly due to an expected decrease in private consumption and probably also in investments in the economy, certainly in the first phase of the war. In the government bond market, sharp price decreases are expected, especially in the non-linked shekel bonds for the medium-long term. The indices of the index are expected to absorb rate decreases, mainly in the medium-long part of the curve. In the short term, relative stability is expected, and perhaps even slight price increases." Reznik warns that corporate bonds will have sharp price drops in such a scenario, especially in medium-low rated bonds.
Dollar exchange rate and defense sector
Another effect of the war in the north could be on the dollar exchange rate. If a war breaks out in the north, the reaction will be especially harsh. Reznik estimates that in such a scenario, the Bank of Israel will return to selling dollars. "Therefore, the effect of the war on foreign exchange may be limited," says Reznik. Defense companies and oil and gas companies may be relatively immune to a war situation in the north. Mani adds that "in the event of a war, dual-listed companies, most of whose activity is abroad, such as Teva, and high-tech companies whose activities are abroad, will suffer minor setbacks. Defense companies, due to a backlog of orders that will increase because of the defense budget, will rise."
