The decline in Israeli assets accelerated on Tuesday as investor concern grew over a law that weakens the power of judges and which has sent hundreds of thousands of Israelis to the streets in protest.
(Bloomberg) — The decline in Israeli assets accelerated on Tuesday as investor concern grew over a law that weakens the power of judges and which has sent hundreds of thousands of Israelis to the streets in protest.
The shekel slipped for a fourth day, dropping 1.7% to 3.7225 per dollar as of 3:05 p.m. in Tel Aviv, the biggest loss among some 150 currencies tracked by Bloomberg.
The benchmark stock index was down 1.6% on Tuesday, also the poorest performance in the world among primary indexes monitored by Bloomberg. The nation’s local currency bonds dropped, weakening by the most since February as of Monday’s close.
“I think what you are seeing now is a fundamental change in the quasi legal controls,” said Saed Abukarsh, Dubai-based chief portfolio manager and co-founder at Ark Capital Management. “Investor sentiment will be heavily impacted given that this will be viewed as an initial step in the total overhaul of the Israeli legal structure,” he said. “I expect this selloff to continue as well as demonstrations to escalate.”
On Monday, Prime Minister Benjamin Netanyahu’s right-wing coalition scrapped a law that allowed judges to void ministerial decisions they considered “unreasonable,” effectively removing judicial oversight over elected politicians’ decisions.
The government says the reasonableness law is just the first step. It also wants to increase the ability of politicians to select judges and make it harder for the Supreme Court to overturn legislation. Opponents say such legislation undermines Israel’s democracy and could imperil its status as a magnet for tech investments.
“Netanyahu has drawn this process out and so tensions will likely get worse,” said Win Thin, global head of currency strategy at Brown Brothers Harriman & Co. “There will be significant economic costs as protests continue.”
He said he also worried about security, citing a tail risk of “bad actors” attempting to take advantage of dissent within the military.
Israel in ‘Twilight Zone’ as Investors Fret Over Judicial Law
“Short-term Recovery”
The shekel’s one-month implied volatility has jumped by the most in over a year in the past two sessions, rising to the highest since April 17. The one-week measure has spiked to make it among the top three in the world behind Russia’s ruble and Turkey’s lira.
Eimear Daly, a London based emerging-markets strategist at NatWest Markets, said that while investors were concerned about the potential for further moves by the coalition, the shekel could gain a reprieve from the parliamentary recess beginning at the end of July.
“Without any further tangible moves to further constrain the judiciary’s power, the shekel selloff will be limited” and it could stage a short-term recovery during the break, she said. But “further judicial reform likely means further ILS weakness,” Daly said.
(Adds comments from BBH, Ark Capital)
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