Escalating War Fears Drive Tel Aviv Stock Exchange to April Lows

The Tel Aviv Stock Exchange (TASE) declined sharply at the start of weekly trading on Sunday. This drop was driven by fears of a potential conflict with Hezbollah and Iran. The TASE 35 index fell 2.3% to 1,937 points, marking its lowest level since April.

A poor performance on Wall Street indices on Friday added to the negative sentiment. The TASE has been under pressure since mid-July due to rising tensions with Hezbollah and Iran. The assassination of Hamas political leader Ismail Haniyeh in Tehran last Wednesday heightened speculation of a military response from Iran.

This incident followed an April attack on Iran's Consulate in Damascus. Although Hamas and Iran accused Israel of Haniyeh’s killing, Tel Aviv has not confirmed or denied involvement.

The TA-35 index dropped as much as 2.7% before slightly recovering to a 2.5% loss by shortly before 1 p.m. local time. The Tel Aviv Stock Exchange is closed on Fridays and Saturdays. Adi Babani of Meitav Investments Ltd. highlighted the dual pressures on the market. "Tension from an Iranian reaction after the twin strikes in Tehran and Beirut is still in place, on top of the global market selloff at the end of last week," he said.

US stocks plummeted on Friday following weak employment data, spurring concerns of an economic slowdown. There are doubts about the Federal Reserve's pace in lowering interest rates. Israel braces for a possible retaliatory attack from Iran, which has threatened to avenge the recent assassinations of Hamas and Hezbollah leaders. The local market reflects the heightened security tensions.

On Sunday, dual-traded technology shares, particularly those in the semiconductor industry, saw significant declines. Nova Ltd. and Camtek Ltd. each fell by 11%. Tower Semiconductor Ltd. and Nice Ltd. experienced around a 5% loss.

Ronen Menachem, chief markets economist at Mizrahi Tefahot Bank Ltd., attributed the market slide to the sharp drops in the US on Friday and "tremendous security tensions" in Israel. He noted that the market is expected to remain very nervous.

Investors are currently weighing two potential scenarios, according to Menachem. The first scenario involves continued escalation and damage to local economic activity, potentially spreading to international markets. The second scenario involves increasing pressure on Israel from allies, leading to a cease-fire in Gaza and a potential rebound in Israeli shares.

Despite the current downturn, the TA-35 index reached a record high less than a month ago. Regional tensions have also affected other Middle Eastern stock markets, including those in Egypt and Saudi Arabia, as they start their new trading week.

As the situation unfolds, investors and market participants will closely monitor developments and their potential impact on the Tel Aviv Stock Exchange and broader regional markets