Most unexpectedly, despite the numerous missile barrages launched by Iran towards Israel and the damage to lives and property, the Tel Aviv Stock Exchange (TASE) leading indices closed today with healthy gains of nearly 0.5%. The market opened the trading day with declines of over 1.5% in the leading indices, and over 2.5% in the banking indices, before swinging to gains of over 1%, but falling back to just under 0.5% before closing.
TASE EVP head of trading, indices and derivatives Yaniv Pagot says Israel’s latest military moves are a decisive step for the better: “Anyone who has lived in the State of Israel for the past 30 years knows the words the Iranian threat, and the Iranian nuclear program, which has been a kind of cancerous growth on the Israeli economy, on the horizon of the State of Israel, and we lived with this growth for all these years. The rating agencies have also talked about the Iranian threat all the time. On Thursday and Friday, Israel decided that this growth needed to be cut out. As absurd as it may sound, if Israel’s geopolitical risk premium was a certain rating – today it is lower.”
Pagot stresses that despite the moral difficulty of speaking in economic terms at a time like this, professional analysis is important: “It is difficult to speak in terms of a risk premium while people are dying here, and it is difficult to know what else is expected, but there are people whose job it is to look at this from a rational, cold, numerical perspective.”
“We are still expecting a lot of uncertainty and volatile days ahead for the next two or three weeks, but in slightly longer terms, it seems that favorable conditions for investments in the TASE could develop here. Ultimately, minus all the sadness and fear, from an economic perspective, there is only one important question: Has the risk premium decreased compared to the end of last week? According to this, investors should base their actions. The answer is that the risk premium has fallen, and it could fall significantly further. If this happens, it will change the entire risk profile of the Israeli economy for many years to come.”
The market has learned to cope with uncertainty
Pagot believes that the improvement in the security situation with Iran is very significant for the TASE. “Since the start of the year, NIS 4 billion more has entered the TASE stock indices. These are very significant amounts, but that still doesn’t scratch the surface of the potential. A large part of the public still doesn’t hold shares in their account, like they hold the S&P index, for example, and that’s a huge potential for entering the TASE, along with the money in the money market funds, for example.”
As for the bond market, Pagot notes that it is currently reacting with the sharpest decline, but that it is not a collapse either. “We are currently seeing declines of 0.5%-0.6% in the ten-year government bond; even in the longer bonds, the yield is around 5%, which is a comfortable yield. A decrease in the geopolitical risk premium in the medium term could bring a significant interest rate cuts back to the table, which would also support the stock market.”
Pagot recalls his experience from past events: “I reminded my team of the attacks in 2002 (suicide bombers in the second Intifada), and I remember the attacks outside when I was sitting in the office and there were dozens of deaths. The market has learned to deal with this, and it is not governed by the amount of blood and deaths and destruction and sadness, but by the economic implications of it.”
Why is the market not collapsing this time?
Compared with the massacres by Hamas on the Gaza border on October 7, Pagot notes: “When the stock market opened on October 8, there was big panic. The turnover was much higher, and the market crashed by 6.5%. We are seeing an extraordinary show of strength today, and it is far from intuitive.”
He adds, “The event now brings me back to the Second Lebanon War. I managed investments there and had a lot of dollars in my portfolio. Even then, missiles fell on the refineries in Haifa, and then there was also an ammonia plant there – in other words, a mega-risk. I was sure that there was no more extreme scenario than this and that the dollar would rise (against the shekel), but that day, the dollar rose by barely 1.5%, and then the situation calmed down and the dollar weakened.”
On investment portfolios, Pagot recommends well considered caution: “Right now, there’s no need to be euphoric. There’s no need to make a radical change in the portfolio. I don’t think decisions should be made out of pain. In addition, no huge opportunities have arisen now. We do see in the meantime that people are increasing exposure to retail and security stocks, and on the other hand, a slight reduction in banks. But many more positive things can develop.”
Published by Globes, Israel business news – en.globes.co.il – on June 15, 2025.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2025.
