Stocks listed on the Tel Aviv Stock Exchange are performing despite the war in the region

Shares on the Tel Aviv Stock Exchange, Israel's only stock exchange, have risen steadily since the start of the conflict with Hamas, which has now expanded on several fronts, despite the country's downgrade, growing deficit and persistent inflation.

Over the past year, Israel's budget deficit has risen to 8.3 percent, up from 1.3 percent in the year before the war, while international rating agencies Fitch, S&P Global and Moody's downgraded Israel's rating. In addition, capital-raising by Israeli technology firms - the industry that drives Israel's growth and exports, though less significant on the stock market - has slowed in recent months, according to Israeli publication Ynetnews.

Still, stock investors didn't panic. Israel's benchmark Tel Aviv Stock Exchange 35 (TA 35) is up nearly 26% since the conflict broke out, while the TA 125 is up 24%, according to our calculations based on Investing.com data.

• The gap between expectations and reality

Investors' optimism can be attributed to the return to normal of social, economic and cultural life in many parts of the country. Economic activity has not been severely affected, as evidenced by for example credit card transactions and retail sales figures returning to pre-war levels, so there is no real cause for panic. . The reduction in inflation, even if not at the expected pace, together with the recovery in the real estate industry, have contributed to the state of optimism, writes the mentioned publication, in an article published in the first part of this month.

The evolution of the Israeli stock market also comes in the context of the growth of the main Western markets, the S&P 500 index having an advance of about 31%, since the beginning of the conflict in the Middle East, while the pan-European Stoxx 600 index appreciated by 16%, in the same period.

The Tel Aviv Banks index, which includes the country's five largest banks, has appreciated by 24% since the start of the conflict, while the Tel Aviv Real Estate index has climbed 29%. The Tel Aviv Construction index was up 30%, but the biggest increase, of 39%, was marked by the Tel Aviv Retail index, mainly due to the performance of Shufersal shares, whose price has doubled since the beginning the conflict.

The gap between expectations and reality is one of the most important factors explaining the performance of the Tel Aviv stock market, says Ken Fisher, founder and chairman of Fisher Investments. "In October last year, expectations about the Israeli market were on the ground. Economic analysts expressed concern that the Israeli economy would take a long time to recover. Many predicted the conflict would spread throughout the Middle East and perhaps beyond. But these things did not happen," Fisher wrote in an editorial published in August in the Israeli publication Calcalist.

• Strong gains for defense stocks

Arms, defense systems and military equipment manufacturer Elbit Systems, controlled by the Federman family, is Israel's largest defense company, including in the United States, and the sixth-largest corporation on the Tel Aviv Stock Exchange. Its shares have been in negative territory for a long time since the start of the conflict, only recently managing to overcome this level, even as the company reported record results, namely a 12% increase in revenue, while the value of orders reached 21 billion of dollars, writes Ynetnews.

According to managing director Bezhalel Machlis, the stock's performance was affected by the fact that, as an Israeli company, a good portion of its revenue goes to the Israeli Defense Forces and the Ministry of Defense, which has sparked backlash from pro-Palestinian and anti-Israel bodies around the world, which included violent protests against the company, especially in the UK.

NextVision Stabilized Systems, a company that makes cameras for ground and aerial vehicles in high demand by Elbit and the Israeli aerospace industry, is the second-largest issuer on the Tel Aviv Stock Exchange. Its shares have risen about 80% since October 7 last year, even as orders for its products fell in the second quarter, according to Ynetnews.

Razor Labs, a software company that develops artificial intelligence solutions and products, involved in the defense industry through its product "Inspection AI", which can detect defects in ammunition during the production process, had a spectacular evolution of the share price, from at 50 shekels last October, at about 540 today. Shares of Third Eye Systems, which provides systems for detecting explosive drones and unmanned aircraft, rose 130%.

• The market share of Israel's largest airline has doubled

Apart from the defense companies, the titles of El Al, Israel's largest airline, were among the beneficiaries of the situation in the area, with many international airlines canceling flights to Israel, so that El Al was, in certain times, the only option for passengers. The company has raised ticket prices and its market share has almost doubled, Ynetnews writes, with its shares up 170% compared to when the conflict broke out, according to our calculations based on Investing.com data.

Read How does the war in the middle east benefit our economy?