1. USD/SHER
- Opposition victory and market perception of improved foreign relations and institutional risks: The shekel may receive support.
- Netanyahu's continued rule or prolonged coalition deadlock: The exchange rate may face downward pressure.
- JPMorgan's scenario analysis on August 27 estimated that an opposition victory would correspond to a shekel appreciation of approximately 2%-3%; a Netanyahu victory would correspond to a shekel depreciation of approximately 3%; a broad coalition government and prolonged political uncertainty could result in a roughly flat exchange rate.
- Key risk: This scenario estimate was released in August. The shekel has already appreciated significantly, and if the outcome meets market expectations, a "buy the rumor, sell the fact" scenario could occur.
2. Israeli Stocks or Related ETFs
- Local stocks may benefit if the election results in a clearer ruling coalition and a decrease in political risk premium.
- Short-term volatility may increase if the outcome is uncertain and the risk of a re-election rises.
- Historical research from the Tel Aviv Stock Exchange shows that the stock market tends to be weaker before deadlocked elections, but the return gap between different election results usually gradually narrows in the months following the election.
- Key Risks: Israeli stocks have risen approximately 130% since October 2023. Election gains may be partially reflected in prices; the performance of US tech stocks, the AI industry, and global markets may also outweigh the election's impact.
3. Israeli Government Bonds
- Bonds could be supported and yields could decline if political risk premiums decrease and fiscal policy becomes clearer.
- Long-duration bonds could face pressure if government formation becomes difficult and defense spending and deficit pressures continue to widen.
- Investment managers at United Investments say they are buying Israeli bonds and are optimistic about their fundamentals.
- Key Risks: Bond prices are also affected by US Treasury yields, inflation, central bank policy, and Israel's fiscal situation. Israel's public debt is approaching 70% of GDP, and the budget deficit is projected to be around 4.5% of GDP; the direction of bonds cannot be determined solely by the election.
4. Markets Outside Israel
- TT International suggests that regional tensions could ease if the opposition wins or the Netanyahu government is weakened, thus benefiting Lebanese bonds.
Key risks: Lebanese bonds are subject to credit, liquidity, restructuring, and geopolitical risks. Even if regional tensions ease, it does not necessarily mean the Lebanese government's debt repayment capacity will improve; they cannot be simply used as a hedge against the Israeli election.
