Israel-Hamas War Casts Shadow Over $43 Billion in Assets as Stocks Slump


Ishika Mookerjee and Filipe Pacheco
Tue, 10 October 2023 

(Bloomberg) -- The conflict between Israel and Hamas has turned the spotlight on billions of dollars in Israel-linked fund assets, as money managers gauge the toll on businesses operating in the war-stricken country.

At least $43 billion is held in Israeli stocks or bonds by passive and actively managed funds tracked by Bloomberg. And that’s taking into account only the funds that have 70% or more of their exposure in Israeli securities. Among the products are US-listed iShares MSCI Israel ETF and ARK Israel Innovative Technology ETF, both of which slumped in Wall Street trading on Monday.

Israel’s stocks tumbled with the shekel and local bonds following the sudden attack by Hamas over the weekend. Local assets, traditionally seen as a stable spot in the Middle East, had already been rocked this year after government efforts to weaken the judiciary and ensuing mass protests unsettled markets. Concerns about an escalation of the war are rife.

READ: Israel ETFs in US Fall Most Since March 2020 as Volumes Surge

“Ultimately, it will depend on how long the conflict lasts but investors will demand a bit of a risk premium to invest in Israeli assets for a while,” said Shane Oliver, head of investment strategy and chief economist at AMP. “The question is whether it ushers in a new round of severe terrorist activity or not, and then whether Iran may get involved.”

Israel’s stock benchmark plunged 6.5% on Sunday, its biggest drop in more than three years, before edging higher in the next session. The shekel weakened to the lowest since 2016 against the dollar even after the Bank of Israel unveiled an unprecedented $45 billion program to defend the currency.

The market turmoil brought about the worst day since March 2020 for BlackRock’s $132 million passive fund on Monday. Ark’s fund and the VanEck Israel ETF slumped more than 4%.

With factories and other physical assets looking increasingly vulnerable as the war drags on, investors are watching for disruption to business activities and the earnings fallout.

There are more than 100 Israel-domiciled companies listed on US exchanges including several technology firms, according to data compiled by Bloomberg. Cybersecurity firm Check Point Software Technologies Ltd., Bank Leumi Le-Israel and chip supplier Nova Ltd. are among those commonly held by foreign investors.

Some of the money managers are determined to ride out the storm.

“We are actively reviewing the risks and exposures of the fund and will make appropriate changes if needed,” said John Gualy, who co-manages the Timothy Plan Israel Common Values Fund. “Opportunities may arise for the Fund given the significant stock moves during these times,” he said.

Gualy added the fund has received “very few questions regarding redemption.”

The selloff may exacerbate should the battle with Hamas spiral into a more devastating proxy war embroiling the US and Iran, the impact of which would reverberate across world markets. Global risk assets have already been reeling from elevated borrowing costs, rising oil prices and a stronger dollar.

If investors are “bearish already and negative news comes and there is an element of surprise, then that has the potential to cause a lot of of damage,” said Olivier d’Assier, head of Asia Pacific applied research at Axioma.

--With assistance from Netty Ismail, Jason Siu and Tammy Taweeugsornpun.