Tel Aviv Market Slide Points to Investors Betting on Election Deadlock

Israeli stocks have slid sharply since early October as the country heads toward an unusually close October 27 election, The Times of Israel reported, with investors increasingly pricing in the possibility of a deadlocked result that could force yet another round of voting.

Tel Aviv Stock Exchange researchers examined ten Israeli elections dating back to 2003 to see whether pre-election market moves reliably signal what investors expect at the ballot box. They found a clear pattern: in the three months before elections that ended in deadlock, the TA-125 index fell by an average of 5.3 percent, compared with just a 0.2 percent average decline ahead of elections that produced a clear, stable outcome.

"The Israeli market is showing weakness, which is consistent with declines ahead of previous elections, especially those that did not yield a clear outcome," said Nissan Avraham, a macroeconomist with the exchange's research unit. The same research found that the gap narrows quickly after election day regardless of outcome, with market performance converging within three months and five-month returns ending up nearly identical either way.

The current uncertainty stems from recent polling showing neither Netanyahu's coalition nor the main opposition bloc able to secure a majority on its own, with several parties' conditional willingness to rely on Arab or ultra-Orthodox support further complicating the coalition math either side would need to actually form a government.