The Tel Aviv Stock Exchange..
(photo credit: Bloomberg)
Israeli financial markets have proved remarkably resilient to regional political
crises in recent years, but there are scenarios for Egypt that might increase
the local markets’ sensitivity to regional politics, investment bank Citigroup
“Israeli markets have not bothered too much about regional
politics since 2002,” Citigroup analyst David Lubin said in a report. “However,
we think that regional events could become a much bigger factor influencing
Israeli financial confidence, particularly given the flow of news recently from
Lebanon. And if the region’s unrest were to spread to Syria, where the Islamist
opposition has some parallels with that in Egypt, Israeli confidence could be
Similarly, analysts at UBS investment bank said Monday
the recent developments in Egypt potentially have geopolitical implications for
“While we believe the Israeli economy will remain largely
unaffected, international investors could attach a higher country risk going
forward until the situation has resolved,” UBS analysts Daren Shaw, Roni Biron
and Ziv Tal said in a report on Israel.
“The peace with Egypt has largely
enabled Israel to enjoy relative quiet on its Southern border and a close
relationship with one of the most senior members of the Arab league. Given
Israel’s complicated geopolitical landscape, we believe that any fundamental
change in Egypt presents a potential risk for Israel.”
UBS praised Israel
for being one of the top performing economies in the OECD.
economy should grow 3.8 percent this year and 4% in 2012, it said.
note that much of the TA-25 are large global companies and are unaffected by
events in Israel,” the report said.
“During the past five years the
Israeli market has managed to successfully sustain conflicts in Lebanon and
Gaza, as well as the global downturn, while significantly outperforming some of
its OECD peers.
“We attribute much of this sustainability to conservative
monetary and fiscal policies in recent years, the export-oriented nature of the
economy and its stable and liquid banking system.”
Citigroup’s Lubin said
efforts by the Bank of Israel and the Finance Ministry to impose controls on
capital inflows over the past two weeks seem redundant now. Over the past two
weeks, measures were announced to limit speculative capital inflows and weaken
the shekel: imposing an unremunerated reserve requirement on foreign-currency
forwards and swaps; and announcing a suspension of foreigners’ exemption from
withholding tax on fixed-income securities.
“Partly due to the impact of
these measures, the shekel has depreciated by nearly 10 percent in
trade-weighted terms during January,” he said. “But it remains stronger than its
level as recently as July 2010. If the news flow from the region remains
negative, Israeli financial markets may rediscover their 2002 sensitivity to