JPMorgan warns about investment risk in Israel

A prominent Wall Street bank has warned of investment risks in Israel as the judicial reform issue inflames the country, Israeli outlets reported Friday. 

Israel’s Channel 12 published a memo from JPMorgan titled, “Israel Strategy: Domestic volatility flares up.” The memo warned of increased investment risk in Israel stemming from the government’s judicial reform plans and geopolitical tensions. 

“Israel’s local markets have seen a flareup in idiosyncratic risk, as increased geopolitical tensions were added to investor concerns over plans for judicial reforms,” read the memo. “The judicial reform has raised concerns regarding institutional strength and the investment climate in the country.”

JPMorgan cited the “significant local protests” in Israel against the reforms as evidence of the country’s increasing volatility. The bank added that the effect of institutional weakening on investment is “difficult to judge.” 

The situation in Israel could lead to its credit rating being downgraded, according to JPMorgan, though the memo predicted the market impact would be “limited” in such a scenario.

פרסום ראשון - בנק ההשקעות ג׳יי פי מורגן, הפעם בדוח רשמי של מחלקת המחקר: הסיכון להשקעות בישראל עולה עקב התכנית המשפטית.
המסמך כולל השוואה למצב בפולין, והתראה על חשש מפגיעה בדירוג האשראי.
הדוח נשלח הלילה למשקיעים ולקוחות ברחבי העולם עם הבהרה שזו העמדה הרשמית של הבנק pic.twitter.com/2thbpXDRyQ

— עמליה דואק (@AmalyaDuek) February 3, 2023

The memo, dated Thursday, was widely covered in the Israeli media. 

The document could come as an embarrassment for Prime Minister Benjamin Netanyahu, who said earlier this week that JPMorgan had confidence in investing in Israel. “They say that the judicial reform will keep investors away. But two of the biggest and most influential investment banks, JPMorgan and Goldman Sachs, say the exact opposite,” Netanyahu tweeted Sunday. 

An Israeli diplomatic source told Al-Monitor and other reporters Friday that JPMorgan did not properly understand the judicial reform plans. “You can spin political markets endlessly, but you cannot spin financial markets for very long,” said the source. “The judicial system will remain independent just as it is today. The attempt to suppress investments will not last for long." 

Why it matters: The judicial reform proposed by Netanyahu’s governments has divided Israeli society. It would diminish the power of the Supreme Court to overturn legislation and assert stronger political control over judicial appointments. Netanyahu and Justice Minister Yariv Levin argue that the reform is necessary in order to express the "will of the people," while critics warn it would erode Israel’s democratic values, negatively impacting Israel’s international image and its attractiveness for investments.

The Israeli right has long held the country’s Supreme Court in contempt, seeing the institution as thwarting its plans. Last month, the court blocked the appointment of Netanyahu ally Aryeh Deri to the government over his tax fraud conviction. In 2022, the court halted the eviction of Palestinian residents from Jerusalem’s Sheikh Jarrah neighborhood. The legal dispute has long been a flashpoint between Israeli nationalists and liberals. 

Know more: The Israeli government is widely considered the most right-wing in the country’s history. Some US Jewish groups have also expressed concern about the government’s views on the judiciary, Arab citizens and other issues.