Israel Assets Plunge on Peace Talks After Years-Long War Rally

Israel's stock market and currency experienced the steepest declines globally in the past month, driven by concerns that a potential peace agreement between Iran and world powers could isolate Israel. The Tel Aviv Stock Exchange's TA-35 index fell by 7.8% in May, and the shekel depreciated by 4.5% against the US dollar. Investors are worried that a deal, which could involve sanctions relief for Iran, might alter regional power dynamics, potentially weakening Israel's security alliances and its standing against adversaries like Hezbollah and Hamas. This sentiment has overshadowed a multi-year rally in Israeli assets, which had benefited from technological innovation and a strong defense sector. Analysts at JPMorgan noted that increased geopolitical uncertainty typically leads to higher risk premiums for emerging market assets, and Israel is no exception. The Israeli government has publicly expressed strong opposition to any deal that does not adequately address Iran's ballistic missile program and its support for regional proxy groups. The uncertainty surrounding the outcome of these peace talks has led to a significant outflow of foreign investment, with net foreign sales on the Tel Aviv Stock Exchange reaching $1.2 billion in April alone, according to the Bank of Israel.