In the wake of the latest violence on the Lebanese border, the TA-25 collapsed Wednesday, sliding 32.75 points to 784 in afternoon trade - a drop of 4% - making the benchmark index the biggest decliner of all global indices.
Heaviest fallers were banking and real estate stocks, with IDB Holdings and Africa Israel both suffering drops of almost 7%.
The broader TA-100 index fell 4.24%, down 35 points at 796.5. The shekel was also hard hit, trading down 1% at 4.43 to the dollar.
"We know from previous experience that security crises [such as these] make clients less likely to invest in long-term products such as shares or property", said Rami Sasson, CEO of Bank Adanim, indicating that this fear was behind investors' decision to pull their money out of the stock market.