Red on a black background. Tel Aviv Stock Exchange (the share prices appearing in the pictures have no connection to the content of the article)/Reuven Castro
The Hebrew year, which ended a few days ago, will be remembered as a very turbulent year in the capital market. 40-9 began with central banks around the world in the midst of a restraining policy of monetary tightening and massive interest rate hikes designed to deal with runaway inflation that was ruthlessly striking global markets.
It can be noted that about three months before the start of 1-<>, a <>-year inflation record was set in the US with a jarring figure of <>.<>%. The biggest concern in the markets was that the major economies would enter a significant slowdown in growth along with runaway inflation.
The capital markets did not remain indifferent to the rising concerns, and in the first three months of the Hebrew year, the main indices continued to plunge markedly, with pessimism taking over every good plot and the terrifying scenarios of global economic contraction setting the tone.
However, with the passage of time, the contractionary monetary policy of central banks around the world led to a decline on the demand side. In addition, moderation in commodity prices and marked improvement in supply chains increased the supply side of the equation and led to moderation in the dimensions of inflation.
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The bull galloped again. After capital markets around the world expressed their fear of a recession at the beginning of 2022/23, the expectation of a "soft landing" caused price increases/ShutterStock
The grave concern of a contraction in the global economy together with high inflation has been confirmed, as noted, in the face of encouraging data indicating a soft landing in the US market: when inflation declines markedly, the labor market remains tight and there has even been a decline in unemployment, the recession that was observed as an almost certain event in the markets has been relegated to an angle fund.
In Europe, the data also began to indicate a strong economic environment, with expectations of economic contraction falsified against data of a slowdown only: the unemployment rate remained low, a relatively warm winter in Europe that allayed serious fears of a catastrophe in energy prices and led to a sharp decline in gas prices and an increase in disposable income and private
consumption. The change in the world's leading indices was immediate, and the bright green color returned to color the screens when, unusually, the Israeli market did not participate in the green celebration.
Six days after the swearing-in of the 37th Israeli government, a legislative initiative for substantial changes in Israel's judicial system was submitted. This initiative is known as judicial reform. The initiative sparked public debate and widespread protest, with hundreds of thousands of Israelis taking to the streets for fear of harming Israel's character as a liberal democracy. On the other hand, there is a large group of the population that is in favor of implementing the reform and promoting it without delay.
The serious concerns of damage to the local economy due to the promotion of the law in the manner in which it was first proposed, the risks of damage to Israel's credit rating, and the reexamination by foreign investors of the feasibility of investing in Israel, with an emphasis on the high-tech sector, which is the locomotive of the Israeli economy, influenced investors on the Israeli stock exchange, who chose to reduce their holdings in the local market and divert some of their investments abroad.
The Bank of Israel's survey from April presented forecasts of a negative impact of about NIS 14 billion annually over the next three years in the lenient scenario, and a negative impact of NIS 48 billion annually in the worsening scenario.
In August, the Bank of Israel raised the risk level from "medium-low" to "medium-high" in its Financial Stability Report for January–June, noting that the uncertainty surrounding the change in legislation increased the risk premium of the Israeli economy.
Subsequently, there seemed to be a desire to soften the law on the part of the government, and there was even dialogue on the subject in the hope of reaching a broadly agreed outline. However, this attempt ran aground and the law is being promoted by the government in a softer manner than the original and is currently under examination by the Supreme Court.
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Daniel Georgi, Director of the Israeli Securities Desk at Mercantile Bank/PR
The upheaval that gripped the country seeped quite quickly into the domestic market, which was constantly squinting jealously at the world's main indices, which rose sharply due to the impressive success of convergence of inflation worldwide and the risk of a recession that will decline markedly, with markets predicting interest rate cuts at the beginning of the new year.
The shockwaves of the controversy surrounding the legal reform in the local market led to a significant weakening of the local currency, with the dollar rising to NIS 3.86 – the high levels reached at the height of the COVID-2020 pandemic in March 10. Overall, the dollar strengthened by about 35 percent in the Hebrew year, which is currently ending by about 5 percent, making the Bank of Israel sleepless in its uncompromising war on inflation.
The Hebrew year ended dismal in terms of the local market, with the leading index in the Israeli market, Tel Aviv 20, painted red and shedding about 26% of its value, and Tel Aviv Real Estate plunging by 500%. The Nasdaq, on the other hand, jumped 20%, the S&P 28 climbed about <>% and the German DAX posted an impressive <>% increase.
There is no doubt that <>-<> will be remembered as a year that is dry when it comes to the domestic capital market compared to the vast majority of overseas reference countries. Techelet <> and its curses and the beginning of <> and its blessings.
The writer, Daniel Giorgi, is Director of the Israeli Securities Desk at Mercantile Bank
*This document and the information and/or analysis contained therein should not be construed as an offer or advice for the purchase and/or sale and/or holding of any securities and/or financial assets or a recommendation to invest in any specific channels. The contents of this review reflect the opinions and assessments of the review's authors for informational purposes only and are presented as background material only. The analysis in this document is based on information that was published and/or was accessible to the general public and other information, this review does not constitute any reference and/or confirmation of the reliability and correctness of the information. The foregoing is in no way a substitute for investment advice that takes into account the data and special needs of each person
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