Discover how the Israel-Hamas conflict is shaking up Middle East stock market, with Israel’s TA-35 index taking a 7% hit. Get insights into the potential economic ramifications and geopolitical implications.
Middle East Stocks
Stocks across the Middle East took a nosedive as Israel found itself embroiled in a conflict with the Palestinian group Hamas, resulting in a significant downturn in regional markets. Sunday saw major equity indices in the area suffer losses, with Israel’s benchmark TA-35 stock index experiencing a staggering 7% drop, marking its most substantial decline in over three years. The repercussions of Saturday’s unexpected attack on Israel by Hamas had a profound impact on Middle East markets, setting the stage for what appears to be a volatile week ahead.
Israel’s financial landscape bore the brunt of this turmoil, with the TA-35 index witnessing a precipitous fall. Simultaneously, the Tadawul All Share Index in Riyadh dropped by 1.2%, while Qatar and Kuwait also saw declines in their respective stock markets. Egypt’s EGX30 gauge plummeted by as much as 5.4%.
The Hamas attacks represent the deadliest assault on Israel in decades and have the potential to escalate into a wider conflict. Israeli Prime Minister Benjamin Netanyahu announced a protracted military campaign against the militant group and expressed confidence in Israel’s ultimate victory. President Joe Biden, meanwhile, offered unwavering support from the United States.
This conflict unfolds at a time of diplomatic sensitivity and internal division within Israel, particularly concerning Netanyahu’s coalition with the far-right. Their efforts to overhaul the nation’s judiciary have deepened divisions. Consequently, the Israeli shekel has slumped to its lowest point in seven years, just ahead of the scheduled reopening of Israel’s parliament later this month.
Hasnain Malik, a strategist based in Dubai at Tellimer, which provides research and data on emerging markets to investors, noted, “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 sharp decline in Israeli stocks has brought trade-suspension rules on the Tel Aviv exchange to the forefront. An 8% drop in the TA-35 Index triggers a 30-minute halt, while a 12% drop results in a full-day closure unless management decides otherwise.
Ori Greenfeld, the chief strategist at Psagot Investment House, emphasized that the war in Gaza could have a more pronounced impact on Israeli markets compared to previous military operations. He predicted that if the conflict expands, Israel’s economy could suffer due to decreased private consumption and investments, both public and private. Furthermore, international investments and trade relations could be adversely affected, potentially weakening the shekel.
Hamas’s incursions into Israel have occurred during a fragile period for the nation. Netanyahu’s attempts to curtail the judiciary have sparked mass protests and unnerved foreign investors. The shekel is already one of the worst-performing currencies this year among the 31 major currencies tracked by Bloomberg.
Netanyahu’s aspirations for increased regional integration with Arab and Muslim neighbors face a formidable challenge. Negotiations are underway with the US and Saudi Arabia for a complex three-way deal involving security guarantees from Washington to Riyadh in return for Saudi Arabia normalizing relations with Israel. Additionally, discussions are ongoing with Turkey and other parties regarding gas exports to Europe and trade corridors from Asia.
In light of these developments, regional risks have surged, as noted by Tellimer’s Malik.
The ongoing conflict has resulted in hundreds of casualties on both sides, and Palestine temporarily suspended trading on its stock exchange on Sunday, citing “security conditions in the Palestinian territories,” with plans to resume trading on Monday.
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