The economists of the investment giant Goldman Sachs In their foreign exchange review, they referred to the recent weakness in the shekel, along with the latest political developments and assess – “The political uncertainty is worrying and could continue to manifest itself in further weakness of the shekel in the short term, but it will take time for the basic connections created between the dollar-shekel and global technology stocks to erode.”
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Last Friday, senior officials of the economy met with Prime Minister Binyamin Netanyahu regarding the legal reform. Bank Hapoalim CEO Dov Kotler warned that a withdrawal of deposits from Israel had begun, even if in small amounts, and the heads of various high-tech companies also joined the fight for reform and threatened to withdraw the funds from Israel.
Goldman Sachs first praised the local currency, which stood out favorably throughout the pandemic period as a currency driven especially by global rather than local factors. “In particular, even when the local political developments themselves have remained volatile in recent years, the dollar-shekel over time has consistently ranked as our leading foreign exchange hedge against declines in the global stock market.”
The bank’s economists also noted that for many years there was a stable rule of thumb that when global technology stocks fell, the dollar-shekel exchange rate rose – “which indicates that global stock developments, and not local political ones, are the key to a forward-looking view of the shekel.”
Over the past 6 months, these trends have generally continued. During this period, the bank notes, the changes in the NASDAQ index explain almost 60% of the high frequency change in the dollar-shekel: the highest rate among the major currencies.
“However, recently, legal reforms proposed by Prime Minister Netanyahu’s government have raised concerns among some investors, including local ones, that the reforms may reduce the independence of the judiciary in Israel, and that – for example, by ultimately reducing foreign direct investment or the growth of the technology sector In Israel – the shekel may be subject to domestic policy risks more than in recent years,” warns Goldman Sachs. “In line with these concerns, the dollar-shekel presented a notable deviation this week from its typical correlation with global technology indices.”
The bank’s economists do not condemn the local currency yet, noting that “it remains to be seen whether the proposals will be fully implemented.” They also estimate that the Bank of Israel will be able to accompany the significant devaluation of the Shekel through a hawkish monetary policy, which may improve the situation. “But perhaps most importantly,” concludes Goldman Sachs, “there are few signs that recent developments will affect the institutional hedging behavior of local investors, which underlies the striking correlation between the dollar-shekel and global technology stocks, which have driven the shekel for years. Overall, while The recent increase in political uncertainty is worrisome and could continue to manifest itself in further weakness of the shekel in the short term, it will take time for the basic connections created between the dollar-shekel and global technology stocks to erode.”