Global Investing

Israel election cuts Iran risk

January 23, 2013

Israeli markets cheered election results today, with stocks rising 1 percent and the shekel edging up towards recent nine-month highs. Right-wing prime minister Benjamin Netanyahu claimed victory, but his Likud party and ultra-nationalist allies Yisrael Beitenu lost ground to a new centrist party. Final results are expected tomorrow.

Voters seem to have concentrated on domestic issues, including the state of the economy, but foreign investors tend to look at the geopolitical risks, and these appear to have lessened.

Punters have been removing their bets on an air strike on Iran, particularly since the re-election of Barack Obama as U.S. President in November. The chance of a strike on Iran by the U.S. or Israel by the end of the year has fallen to 23.1 percent today, according to online exchange Intrade.com, compared with around 35 percent shortly after the U.S. election, and a high of 60 percent in October.

Political risk analyst Alastair Newton at Nomura also thinks chances of a strike have diminished. He writes in a note today:

Although Israel’s stated policy on Iran is unlikely to shift significantly whatever the make-up of the next government, securing the necessary support in the security cabinet for a strike now looks like a much harder task than would have been the case had Mr Netanyahu won a clear majority.

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