Two words dictate the tempo in the economy of Israel and the capital market: risk premiums. Ten days ago, the State of Israel began a strong military campaign against Iran, and replied that the local stock market was recorded, and shikel bathed in NIS 3.5 / $. Not an obvious consequence when Israel is fighting the largest and strongest enemy.
Once again it turns out that the stock market always works unexpectedly. Not all wars that cause falling. The risk premium offers the best explanation of the Israeli stock market in the past two years, and especially last week.
What is a dangerous premium?
A risk of premium is an additional return requested by investors as payment for the risk involved in an investment, compared to an investment without risk. This is an alternative expression in risk. Investors asked themselves what the potential return of approval before agreeing to investment risk. What is the cost of risking that investment cannot give the expected return, or can also lose money?
For example, if a ten-year-old government of Israel is 4% annual interests, and some commercial company selling a potential annual return of 9%, then implications are the cause that the risk is 5%. In other words, investors need an additional 5% return before they work from an investment regarded as secure in the company’s investment.
The simple rule of the thumb is that the risk premium is resurrected, ie, investors need higher investment returns, the price of property concerns, the price of assets falls, the price of assets is to rise.
There are all kinds of dangerous market premiums: a Risk of Premium in Stocks, which means what an investor’s further returns are than hazardous and some more government investments; A dangerous premium of corporate bonds, means the difference between the crop of a commercial company and the company’s hazard, in exchange for company risk. And there is a dangerous danger to the country, which means the difference between the crop that investors demand an investment in the bonds of a developed country, compared to bundles of developed countries.
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Between October 2023 and June 2023
To return to what is happening in the Israeli stock market in historic times. At the beginning of 2023, the judicial government plan was opened, and in October 2023 the swords of the iron battle exploded, which was committed to Israel’s whole guard, and these two events were guarding the investors in Israel’s economy. As of October 7 worried, it may be said that the geopolitical risk of investing in Israel material material. As a result, the risk of the rosetary country, which brings the risk premiums to all assets (stocks, corporate bonds, cycles). In other words, the prices of the financial possessions of Israel fall.
From September 2024, the trend is returned. After firing operations of care against Hesbollah operatives and then an IDF series, the risk of risk of Israel begins to exacerbate Tel Aviv debt.
But no one wondered what would happen last week. Israel has launched a surprise attack in Iran. There are leaks of leaks in advance of future attacks, but in the days before the stock market falls, it means that the risker crept is upward due to fear in front of Iranian.
What we experienced last week is a process of reducing the risk of putting Israel’s risk in the broadest meaning. It just did not fall into dangerous premiums as we experienced in the past after each military operation, or even after the previous September. What is happening today, eliminating every chief of Iran in Iran and famous nuclear scientists, complete rule of Israel’s skys. And now Americans participate in the campaign on their strike with nuclear installations in Iran.
An imaginary situation in the situation
So the end of Iran’s threat? Any Israeli investment manager claims that Iranian risk is the one he cannot price, because it is always seen as a basis that is difficult to put in a model. Should be recognized as income, as Investors in Israel, have to do with the risk of Iran. We use it.
Breaking Iran’s risk in this way is not yet in situations of investors, and don’t let anyone tell you otherwise. Although there is one secret to believe it or dreaming of it, it is not a scenario sold in stock or bond market. So this is not a normal reduction in dangerous premium. It is a fall of the structured dangerous premium we never can imagine to happen. The best way to see this is to monitor the US Dollar cycle: Shekel has strengthened whatever we want, and, unlike the local stock market, the foreign market, the foreign exchange market is deep and efficiently.
To say that the threat of Iran finally collapses, the risk of Israel’s risk should be fully recalculated, and it is very low. A new Middle East? Normalization? The time is to say.
Beware of euphoria
However, the event is not over, however, and we must guard the euphoria. The local stock market is at least appreciating a future without a threat to Iran and no Iran nurturing the axis of evil in Gaza Strip and Lebanon. But now, after US attacks, there may be increasing worldly stress, and investors recommend preparing for that. There are all kinds of situations: closing the Straits of Hormuz, a response to Iran, Houthis, Russian or Chinese Interventional Price, etc. If a long-term attrition is developed, if something has changed the balance of forces, you can be sure that the risk premium is adjusting and rising.
In the short term too, there are several negative local influences: The dramatic decline in business activity, closed shopping centers, closed skies, the heavy costs of intercepting missiles from the Israeli Air Force, and the Cost of Compensation to People whose homes have been hit, rehabilitation of damaged buildings and infrastructure, and that’s only a partial list. There is a heavy bill to pay to add government debt and break the fiscal deficit target. But not as October 2023, we are now full of hope what can happen in the day after.
Up to investors concerned, a weak quarter for economic activity or for company results is almost less important in a world that is a sharp dangerous premium for a long time. That’s what investors buy Israel’s stock market. The request for the cycle is not lying. Sometimes dreams come true.
Published in Globes, Israel News in News – en.globes.co.il – On June 23, 2025.
© Copyright in Globes Publisher Itonut (1983) Ltd., 2025.
