Geopolitical Uncertainty Weighs on Israel ETFs

Geopolitical volatility and uncertainty has riled global markets this year, with the most recent skirmishes between Israeli’s military and Hamas pressuring  dedicated Israel exchange traded funds.

The iShares MSCI Israel Capped ETF (NYSEArca: EIS) fell 1.3% Tuesday while the Market Vectors Israel ETF (NYSEArca: ISRA) dipped 1.1%. Nevertheless, EIS is still up 8.2% and ISRA gained 4.1% year-to-date.

The benchmark Tel Aviv 25 Index decreased 1.0% Tuesday, hovering around 1,366, its lowest since March 9.

Tensions in Israel are escalating as the government amassed troops along the Gaza border and the cabinet approved 40,000 reservists for a possible ground operation in response to Palestinian rocket fire into its territory, Bloomberg reports.

“There is a lot of uncertainty in the market and people don’t know if the events will escalate in the next coming days,” Yaniv Pagot, the chief strategist at Ayalon Group Ltd., said in the article. “If the escalation continues then there are concerns of a hit to the economy, as reservists won’t come to their office jobs and the local tourist industry will suffer.”

The increased military presence is already affecting Israeli factories, with as much as 20% of laborers skipping work from among the 500 factories within  25-mile radius of Gaza.

“We’re still trying to do everything so that factories continue to run, even with partial amount of workers,” Meir Shimko, Director of Manufacturers Association of Israel, said in the article. “We don’t want to get to a point where everything closes down and we all leave.”