Israeli stocks rose to a record high, cementing their fifth successive quarterly rally, as investors bet that a 20-point plan agreed to by Prime Minister Benjamin Netanyahu and US President Donald Trump could hasten the end of the war in Gaza.
The Tel Aviv Stock Exchange 35 Index climbed 2.8%, the biggest advance in the world on Tuesday. The gains were led by Teva Pharmaceutical Industries, Phoenix Financial Ltd. and Bank Hapoalim, signaling a broad-based rally. Six out of every seven stocks on the gauge rose, and trading volumes were 46% higher than the 100-day average.
Investors have loaded up on Israeli stocks since April as a weak dollar and US policy uncertainty drove money managers to diversify into global assets, including emerging-market equities. The country’s broad mix of stocks spanning technology, defense equipment and financial services helped it leverage interest in those sectors. Along the way, Israeli assets have defied a series of escalations in the Gaza war.
“If the war ends and geopolitical arrangements are achieved, it will have enormous economic implications in terms of fiscal and monetary policy, in terms of sovereign debt ratings and the appeal to foreign investors,” said Yaniv Pagot, head of trading for indexes and derivatives at the Tel Aviv Stock Exchange. “The current rally still doesn’t reflect the potential that’s folded into a positive geopolitical scenario.”
Trump’s plan to end the war was developed without the direct involvement of Hamas. It sets an ultimatum for the group to release hostages, give up arms and surrender — or face the full force of the Israeli military with US backing. It also includes an offer of amnesty to Hamas operatives who hand over their weapons and commit to coexistence. Hamas said that it would need to study the proposal.
Israel’s equity benchmark has jumped 47% in dollar terms so far this year, the 11th best performance across 90-odd national indexes tracked by Bloomberg.
“Anything that might draw the war to a close is positive for Israeli asset prices,” said Hasnain Malik, the head of EM equity and geopolitics strategy at Tellimer. “The big questions on this peace plan are whether Hamas will accept what amounts to an ultimatum to surrender and whether the ultra-Orthodox parties in Netanyahu’s coalition will accept what they might interpret as the first steps towards a two state solution.”
While stocks echoed investor optimism over the Trump plan, Israel’s currency declined on Tuesday, after a rally that took it to a three-year high on Monday. The nation’s bonds, however, joined Tuesday’s gains after the London market’s open. Four Israeli bonds were among the 20 best performers in emerging markets, according to a Bloomberg index.
Investors now turn their attention to the potential for interest-rate cuts in Israel – subject to progress on a ceasefire. The Bank of Israel has maintained its base rate at 4.5% since January 2024 as war-related spending, which averaged about $90 million a day as of early September, put pressure on fiscal balances. An end to the war would open up room for policy easing, Citigroup Inc. strategist Michel Nies said.
“The demands on fiscal and human resources could potentially ease, lowering supply constraints in the economy,” Nies wrote in a note. “This could eventually support potential output and reduce the need for monetary policy restrictiveness.”
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