Benjamin Netanyahu in a statement to the media with Defense Minister Gallant – Haim Zach (GPO)
JPMorgan Chase, one of the world’s biggest financial firms, is sounding the alarm on the future of Israel’s economy and on the New Israeli Shekel (NIS) as the Shekel hit a three-year low against the U.S. Dollar. The Shekel has plummeted against the world’s major currencies since the start of 2023 due to the fears of instability over the controversial judicial reform plans proposed by the government of Benjamin Netanyahu.
Israel’s political opposition charges that the reforms, which include stripping the country’s power to review the legitimacy of new laws and government actions, will irreparably harm Israel’s democracy. Fear of instability in the country has led to a drop in foreign investment in Israel’s vaunted Startup Nation high-tech sector. And some Israeli firms have even taken their money out of the country. This is cited as the main factor in the drop in the Shekel’s value.
And JPMorgan, in issuing its warning, cited the fact that more Israeli investors are taking their money abroad. This, said the firm, is leading to an “uncoupling” of the Shekel and the U.S. stock markets.
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“Persistent domestic political risks have inspired a structural shift in foreign allocation for local institutional investors,” wrote JPMorgan strategist Anezka Christovova. “This shift may have some further to run and it means that the gap between the shekel and US equities could be permanent in nature.”
JPMorgan also said, “We keep a bearish bias on the shekel,” adding that, “Poor entry levels and high day-to-day political volatility keep us on the sidelines.”
At the same time, Prime Minister Benjamin Netanyahu is working hard in an effort to reassure world financial firms and credit rating agencies that Israel’s economy is still strong and that there is no need to be concerned with his government’s political policies. Netanyahu met with officials from Moody’s Investors Service last week and reportedly told them that the most contentious aspects of his government’s judicial reform plan will be taken off the table, including ending the Supreme Court’s power of judicial review.
According to a report made by Israel’s Channel 12 News, Benjamin Netanyahu pledged to Moody’s that he will only move forward with more reforms if they can be passed with a broad majority supported by some members of the opposition in the Knesset.
Interestingly, Netanyahu seems to only make such commitments and comments either to the foreign media or in private meetings. He has yet to make any such pledge to the Israeli public.
Moody’s is expected to issue a new report on Israel’s credit status next month. In July, the firm said in a report that it saw “real risk that political and social tensions will continue to harm the Israeli economy.”
