Or Patreanu Capital : The sectors that may gain

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Or Patreanu Capital : The local financial history proves that the markets tend to fall at the start of wars and recover quite quickly afterwards, will it happen this time as well?

Some data: after a 6.5% drop in the Tel Aviv 35 index on October 8, the first trading day after the murderous surprise attack by Hamas, the leading index of the Israeli stock market recovered and recorded an increase of almost 9.4% from the beginning of November (until the end of trading on the 26 in October).Does this teach about the future? We don’t know. Market timing is a complicated and not recommended operation, it’s not for nothing that they call it a “falling knife”.

Sectors at war, on the other hand, are a different matter: here, almost always, there are more or less known winners and losers.

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the sectors that benefit
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The suppliers of military equipment and combat support equipment benefited and continue to benefit in the first month of the war from increased orders from the security forces, who were engaged in intensive warfare mainly within the Gaza Strip but also in the north of the country and the West Bank (Yosh). No less than 11 defense companies are traded on the Tel Aviv Stock Exchange, some of which Gamow has made a double-digit return since the beginning of the war.

As the fighting continues, the challenges of the IDF become clear and, as a result, the needs of the army as well, which only increases the likelihood of new large orders. The war, what to do, provides a boost to the stocks of the defense sector.

Manufacturers of basic consumer goods – Or Patreanu Capital

Companies that manufacture and/or food products and retail almost never experience sharp drops in demand. People need to eat, drink, use soap, clean the kitchen – and this does not change even during wars. On the contrary: war, by its very existence, causes most people to stay more in the home environment and consume basic consumer goods. Family meals around the table are taking the place of restaurants and cafes, both because people have less money in their pockets and because some of the entertainment venues are closed or partially open anyway.

The victims of the high interest rate

Quite a few companies in the economy suffered a difficult blow from the series of rapid interest rate hikes, which brought the bank interest rate from a level of 0.1% to 4.75% in just a year and a half. These companies may go bankrupt, if and when the Bank of Israel starts lowering interest rates soon. Although the central bank is not in a hurry to do so, the sharp drop in demand in the Israeli economy and the fear of entering a recession may well lead, according to most market estimates, to lead the Governor of the Bank of Israel to monthly decisions on lowering interest rates in the coming year.

exporters (Or Patreanu Capital)

The question mark in the middle title is no accident. Before the war, the Israeli exporting companies, some of which are also traded on the Tel Aviv Stock Exchange, were marked as the most prominent beneficiaries of the financial situation, mainly due to the rapid devaluation of the Shekel, but also due to their being less sensitive to political noises such as the regime revolution.

With the outbreak of the war, on October 7, the dollar did register a leap to 4.08, but the intervention of the Bank of Israel in trade completely changed the picture and caused the American currency to lose ground against the shekel to the level of 3.72 shekels to the dollar (as of 30.11.23). In the new state of affairs, after an increase of almost 9%, there is no doubt that the status of the exporters as profiting from the situation has been eroded, but even so it is to their credit that they turn mainly to external markets, which are not affected by the war between Israel and Hamas.

The losing sectors
Foreign tourism

Flights to Israel have decreased as expected since the beginning of the war, but even those who count on a huge flow of tourists after the end of the fighting are probably living in too rosy a reality. The State of Israel is establishing itself once again as an unpredictable target, one who never knows when terrorist activity will break out in it, such as firing missiles at civilians and ground attack operations.

In-Country Tourism

The hotels in Israel are indeed full of evacuees from the north and the south, but this is not really tourism, since the stay is financed by the state or by generous donors. In addition to this, many B&Bs and guest houses in the north of the country and in the south have been shut down for a long time due to the situation and it is not really clear when they will start to return to normal.

aviation

All the international companies have canceled flights to Israel, but Israeli companies like El Al are not really benefiting from this because at the same time demand has also dropped, especially for flights from various destinations in the world to Israel. Here, too, it is still unclear what the return to normality will look like after the war.

Leisure and luxury consumption

War, by its very nature, makes people go out less. It also causes many to hesitate more in every expenditure, certainly in large expenditures, even more so in expenditures that are not necessary, which are considered luxury.

Bottom line, the Tel Aviv Stock Exchange has an impressive history of quick recovery from wars and rounds of hostilities. What will happen this time? There is no telling. It is possible, however, to estimate who will be the sectors that may stand out favorably during the fighting days and which will record jumps immediately after it. If you believe, for example, that the construction company sector, which is completely frozen these days, will experience a boom after the war, now is the time to start investing in it. On the other hand, if, for example, you believe that the housing crisis will continue for many months after the end of the fighting, you may invest your free money elsewhere.

Or Patreanu Capital : The sectors that may gain and lose from the war