HSBC Bank says changes will weaken Shekel

HSBC, one of the world’s largest banks, has issued a report highlighting the potential impact of changes to the Israeli judicial system on investment in the country. The report suggests that the proposed reforms could lead to a decline in capital market and direct investment, potentially weakening the shekel.

According to HSBC, the recent drop in the shekel-dollar exchange rate is due to a combination of geopolitical tensions and the proposed changes to the legal system. The bank notes that structural issues, such as Israel’s balance of payments, have a greater impact on the shekel than geopolitical developments. Additionally, high exposure of Israeli institutional investors to global financial markets, including stock markets, has a significant impact on the shekel-dollar exchange rate.

Despite the potential impact of the proposed reforms, HSBC has not changed its forecast that the shekel will strengthen, reaching 3.20 shekels to the dollar by the end of the year. The bank acknowledges that the recent political developments could potentially impact the investment environment, weighing on the currency.

In recent years, the shekel has strengthened due to inflows of capital and direct foreign investment in Israel, as well as a rise in foreign investments in the local bond market. Almost 12% of Israeli debt is now held by foreign investors, according to HSBC analysts.

The report follows warnings from other major international banks, including JP Morgan, about the economic consequences of the Israeli government’s planned judicial overhaul.