MSCI Israel and the Hamas–Israel Conflict
Evaluating the Stock Market Impact Across the Middle East
Hardly any day goes by without some grim and worrisome news about the conflict in the Middle East; the latest report indicates that Israel has seemingly entered Lebanon, prompting Iran to retaliate with ballistic missiles. Will Israel respond in kind? Could the conflict escalate further? This narrative dominates current media discussions.
Amidst this turmoil, one might expect dire consequences for the Israeli economy, yet the performance of financial markets tells a different story.
In particular, the MSCI Israel ETF serves as a key indicator of market sentiment. We are no experts on the Middle East; we do not know what will happen, but we decided to take a look at the financial market and the economic statistics for Israel. Surely, if the news is bad, things will look bad economically.
MSCI Israel ETF Outperforms: A Surprising Reaction to Middle East Tensions
According to Google Finance, MSCI Israel ETF, EIS, priced in USD, is up 48.83% since October 2023
(coincide with the beginning of the recent hostilities). As a comparison, SPY ETF is up 39.04% for the
Same period. So, despite the conflict, the broader equity markets in Israel have recorded impressive gains and outperformed those in the US. Clearly, the equity markets do not think the conflict will have a lasting, negative impact.
Another interesting statistic is the Israeli Government deficit – surely conflicts and wars are not cheap:
Surprisingly, the Israeli Budget Deficit, according to Tradingeconomics.com, while spiking initially in the
last quarter of 2023, has returned to a very “average” level of 10.50 Billion ISL (2.8 billion USD) monthly in
2024.
The annual GDP of Israel is around 500 billion USD, so that level of monthly deficits translates into
around 5% of GDP annually. Not bad, given how big the conflict is. Just as a comparison, the US deficit in
2024 is expected to be around 6.4% of GDP, while that of France is expected to be 6.2% of GDP.
Foreign Investment Remains Strong: Israel’s Economic Appeal Despite Regional Unrest
Finally, let’s examine Foreign Direct Investment (FDI) in Israel.
Foreign direct investments have averaged approximately $130 billion per quarter, totaling around $520 billion annually—over 100% of Israel’s GDP (approximately $500 billion). Remarkably, this level of investment is three times higher than in 2019.
Bottom Line
In conclusion, the ongoing conflict in the Middle East does not appear to be significantly affecting the Israeli economy. The stock market is thriving, foreign investments are at record levels, and the government budget deficit remains manageable at around 5% of GDP annually. While the situation could escalate, most foreign and domestic investors currently view the conflict as not posing a substantial threat to either the Israeli or global economy.