Israel continued its bombing of the Gaza strip and it looks like it may not be as threatening to its economy as previous hostile situations and may actually benefit their economy and the exchange traded funds (ETFs) that track the market.

  • For starters, an increase in government spending will most likely boost the economy which has been engulfed by the global recession.  The country plans on beefing up spending on small and medium-size businesses and pour money into bridges and roads.
  • Secondly, the topography that is being blasted is mainly desert and uninhabitated, unlike during the Lebanon war, which hit a major port and tourist destination. 
  • Third, the Israeli government has allowed the reopening of all factories with adequate security and protection near the Gaza Strip. 
  • Fourthly, the border crossings have been opened to allow the delivery of food, and other staples into the Strip
  • Fifth, the casualty toll has been minuscule; only four Israeli’s have died since the inception of the bombings, states David Rosenberg of Bloomberg.
  • Lastly, in an effort to deter air bombings and move the fighting on the ground, the Israeli government has increased its ground troops on the Gaza border and the cabinet has openly announced the recruitment of 6,500 reserves, reports the Economist.

This should enable the Israeli’s to contain the fighting in a specific region and prevent destruction of key economic targets, resulting in not so devastating of an effect on its economy.

Wars and hostile environments generally cause volatility and instability in economies, but in this case, it appears that the effects will not be as devastating to the Israeli economy as previous hostile encounters. An ETF that will most likely be influenced by this fighting is the iShares MSCI Israel Cap Invest Mkt Index (EIS), which is down 58.2% since its inception in March of this year.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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