Market Impact of Israeli-Hamas-Hizbullah Prisoner Exchange

As the Israeli cabinet gears up to approve a controversial prisoner exchange with both Hizbullah and Hamas, I have been asked by some investors as to what I think the impact of the deal with be on the local Israeli financial markets. The answer is that while we may see a very short lived jump, as investors view this as precursor to future peace deals, I doubt that this will be a catalyst for a market rally. In fact over the long run this deal has the potential to cause serious damage to the security of Israel, obviously a negative for the stock market.In a must read column, Globes editor Moti Golan blasts the deal. He believes that this deal will lead to more kidnappings of Israeli soldiers.

In the eyes of the terrorists, this deal makes Israel look very soft. Israel talks a lot but when push comes to shove, the leaders will cave in. For two years Foreign Minister and potential future PM Tzipi Livni, has been racking up frequent flier miles urging anyone who will listen to isolate Hamas. No money. No talking. No nothing. Then what does Israel do? Apparently, Israel negotiates with Hamas and cuts a deal that doesn’t even include captured soldier Gilad Shalit, which was a negotiating red-line just last week. I guess this is what happens when you start negotiating with terrorists. Obama, are you listening?

Sound Bizarre? Golan has an explanation and while it’s scathing, there is a lot of truth to it:

“Why did the government agree to such illogical and damaging agreements? The investigations of Prime Minister Ehud Olmert? The pending primaries at Kadima? Labor Party chairman and Minister of Defense Ehud Barak, Mr. Run Away? Idiocy or insensitivity? The summer heat? Whatever the reason, I am ashamed to be an Israeli nowadays. I am ashamed because I see how terrorist leaders beat us in every battle of wits and in stamina. I am ashamed because I do not understand how, we, the citizens of the country, put in charge leaders of such ineptitude, pathetic and mediocrity. I am ashamed of what it says about us, each and every one of us, which is a very shameful thing.”

For investors, if Golan is correct, we could see a deterioration in the Israeli security situation. This would be an overall negative for the local Tel Aviv stock exchange. His view is backed by a famous Talmudic principle that says that when negotiating for captives, the community must not pay more than the captives monetary value, so as not to encourage the taking of more captives.

We all pray for the welfare of the missing soldiers and their families, and want them to come home as soon as possible.

Posted in Categories: Contributor, Economy, External Research, Stocks.

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