Israeli stocks, shekel tumble as US-Iran peace talks reverse war rally

Israeli stocks and the shekel have fallen sharply as investors worry that a possible peace agreement between the US and Iran could leave Israel in a weaker strategic position after years of market gains during the regional war.

Israel's benchmark TA-35 index has dropped more than 12% in dollar terms in June, making it one of the weakest-performing major national equity benchmarks this month.

The selloff also hit the Israeli currency, with the shekel falling 3.1% against the US dollar over the past month to around 3 per dollar.

Shares of the Tel Aviv Stock Exchange itself have also fallen around 20% over the past month to around 13,160 points, underlining the scale of pressure on Israel's local capital markets.

The declines mark a sharp reversal from the rally in Israeli assets that followed the outbreak of the Gaza war in October 2023 and later expanded into a broader regional conflict involving Lebanon and Iran.

The shekel initially gained around 10% against the US dollar after the outbreak of the war on Feb. 28, falling to around 2.8 per dollar.

The recent market moves suggest investors are now reassessing that view as US-Iran negotiations advance without Israel's direct participation.

A key source of market concern is the unresolved status of Israel's military operations in Lebanon, where Israel has maintained a buffer zone near the border against Hezbollah.

Israeli Prime Minister Benjamin Netanyahu said Sunday that Israel would keep its presence in areas seized in Lebanon, Syria and Gaza.

That stance has complicated efforts to reach a broader regional settlement, with investors watching signs of tension between Netanyahu and US President Donald Trump as Washington pushes ahead with negotiations with Tehran.