Israel's markets have soared despite three years of war and political turmoil, but some investors see further upside if the opposition defeats Prime Minister Benjamin Netanyahu in Tuesday's election, Reuters has reported. Opinion polls point to a tight contest, with neither Netanyahu's Likud bloc nor an opposition alliance centred on former military chief Gadi Eisenkot expected to secure the 61 seats in the 120-seat Knesset needed to govern.

A rally built on tech and defence

Since the Hamas attacks of 7 October 2023, the Tel Aviv market has soared 130 per cent, far outpacing Wall Street's 80 per cent, while the shekel has climbed 25 per cent. Analysts credit Israel's tech sector and the AI boom, while defence spending, nearly doubled to around 8 per cent of GDP, has also boosted shares.

Lengthy coalition talks or even another election are possible. With both Netanyahu and Eisenkot vowing to maintain pressure on Hamas and Iran, markets are focused on broader policy differences. JPMorgan estimates the shekel could swing as much as 3 per cent on the result.

What investors are watching

An opposition victory that improves Western relations and halts the judicial overhaul that sparked mass protests in 2023 could strengthen the currency, JPMorgan said, while another Netanyahu-led government could weaken it. Investor Bill Ackman said a government without far-right ministers Itamar Ben-Gvir and Bezalel Smotrich would signal Israel turning a new page, potentially rebuilding credibility and expanding the Abraham Accords.

None of this is a prediction: polls point to a tight race, and the market reaction will depend on the coalition that emerges, which could take weeks. The shekel's move will reflect coalition arithmetic as much as the headline winner.