Since the massive Hamas rocket attack on Israel on 7 October, Tel Aviv's main index has fallen by 7.8%. Over the same period, the US S&P 500 index has risen by 2.7%. Let's analyse the impact of the conflict on the various national indices, and consider which markets have seen the biggest gains since the beginning of the year, and which appear most promising.
Table of contents:
Israeli stocks at important support
It has long been known that the Israeli economy is based on new technologies and start-ups, which largely raise capital in the country's stock market. Therefore, the area of new technologies is crucial for this economy. For this reason, one can see the Ark Israel Innovative Technology ETF (IZRL) approaching key support at 16.5, a breakout of which could start a continuation of the downtrend.
Source: Conotoxia MT5, IZRL, Daily
Another important topic is the impact of armed conflicts on the stock market, which has been the subject of much research. In particular, it is worth noting the location of the ongoing conflict. When the conflict takes place in a country, this usually has a negative impact on the quotations of the national index. However, when a country's economy is far away from the conflict area, either markets are not historically affected, or, according to a study by LPL Research, after the initial shock, the S&P 500 (US500) index quotations typically rise by an average of 6.3% over the following six months. It is worth noting that in 60% of the 38 conflicts studied since 1940, such an event signalled the start of a new wave of index rises. Will this time be different? It seems not, especially as we are already seeing a rebound in the US.
Source: LPL Research
Investors enjoyed Brazilian coffee this year
The biggest gains among the major economies were seen in the Brazilian equity market. The Ishares Msci Brazil ETF (EWZ) has gained 5.3% since the start of the armed conflict in Gaza, rising 18.3% since the beginning of the year. However, this has not been enough to return the Brazilian stock market to pre-pandemic crisis levels.
The current rise seems to be fuelled by increases in commodity prices, which account for more than 60% of the country's exports. The shock to the oil market (31% of Brazil's exports) caused by the Gaza conflict has raised expectations for future energy commodity prices. This explains the current rally in the Brazilian stock market, suggesting that the market has great potential. Nonetheless, it remains as much as 36% below pre-pandemic levels, even though the value of exports has increased by as much as 56% in that time.
Source: Conotoxia MT5, EWZ, Weekly
In second place among developed economies is the main US index, the S&P 500, which has seen an impressive 14.4% rise in its stock price since the beginning of the year and has gained 2.7% since the escalation of the conflict in Israel, and is now just 10% away from reaching new historic highs.
One potential threat to the US stock market that could be triggered by the conflict between Israel and Palestine is the price of oil. On several occasions in history, increases in the price of this commodity have already led to a recession in the United States.
Source: Conotoxia MT5, US500, Daily
Last on the podium is Taipei, on the other side of the ocean. The Thai stock market is up 12.1% year-to-date and 1% since the outbreak of the conflict. Taiwan's economy is based on advanced technology manufacturing, with a particular focus on the production of semiconductors, which are used in almost every electronic device.
Taiwan's TSMC, backed by the country's government, dominates the semiconductor market, accounting for almost 60% of global production. It is also the largest company in Asia by capitalisation. Therefore, movements on the Taiwanese stock market are strongly linked to the performance of this sector, which has experienced a significant decline in orders until May this year. This sector is considered particularly sensitive to volatile economic conditions.
The current rise in share prices in this market seems to be the result of an increased number of orders that are back on track with the long-term trend. Therefore, the listing of the Ishares Msci Taiwan ETF (EWT), although still 33% below its historical highs, appears to have great potential.
Source: MacroMicro
Source: Conotoxia MT5, EWT, Weekly
Grzegorz Dróżdż, CAI MPW, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
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