Analysts at BBH suggest that the political risk in Israel is picking as pressure builds on Prime Minister Netanyahu and until the uncertainty clears, they believe Israeli assets will continue to underperform.
“Police recommended that Prime Minister Netanyahu be charged with bribery, fraud, and breach of trust. Prosecutors along with Attorney General Mandelblit will now examine the evidence collected by the police and then decide whether to indict the Prime Minister. Mandelblit was once Netanyahu’s cabinet secretary and was appointed Attorney General by him two years ago.”
“Netanyahu has denied all wrongdoing and vowed to continue leading the country. The Supreme Court has ruled in the past that government ministers may not retain their posts once they are criminally indicted. However, it’s not clear if that applies to the Prime Minister himself. Indeed, Netanyahu could be the first sitting Prime Minister to be formally charged.”
“Due to the nature of Israeli party politics, coalitions are typically made up of many small parties and are thus inherently unstable. No government has lasted a full four-year term since 1984-1988. For now, Netanyahu’s allies are circling the wagons. Center-right Kulanu party said will not leave the coalition and is awaiting the decision from the Attorney-General.”
“General elections aren’t due until November 2019, but a collapse in the government would bring that forward. The current government coalition is made up of 6 parties that hold a total of 66 seats in the 120-seat Knesset. This is Netanyahu’s third consecutive term since 2009 and fourth overall. Yet by dominating Israeli politics for so long, Netanyahu has not designated a likely successor within his Likud party.”
“Recent polls show that several opposition centrist and center-left parties are gaining in popularity. These include including Yesh Atid, led by Yair Lapid, and the Zionist Union, led by Avi Gabbay. The last poll was conducted February 1, before this latest news on Netanyahu. According to that poll, the opposition bloc still does not appear likely to win enough seats to form a majority.”
“The Palestinian issue is likely to flare up. US President Trump has made the controversial decision to recognize Jerusalem as Israel's capital. He committed to relocating the US embassy there by end-2019. In related news, there have been recent press reports that the US and Israel are discussing outright annexation of West Bank territory, a move that would effectively kill the two-state solution. On the other hand, if a center-left government were to take power, Israeli-Palestinian relations could improve.”
“Israel scores well in the World Bank’s Ease of Doing Business rankings (54 out of 190). The best components are resolving insolvency and protecting minority investors, while the worst are registering property and paying taxes. Israel does even better in Transparency International’s Corruption Perceptions Index (28 out of 176).”