Exchange-traded funds (ETFs) that invest in Israel-related stocks faced significant pressure on Monday as the country escalated airstrikes on the Palestinian enclave of Gaza in response to an unprecedented attack by militant group Hamas.
iShares MSCI Israel ETF (EIS) Takes a Hit
The iShares MSCI Israel ETF (EIS), a U.S.-listed fund that tracks a market cap-weighted index of Israeli companies, went into a freefall, plummeting approximately 7.8% on Monday. This decline is set to be the largest daily percentage drop since March 16, 2020, according to Dow Jones Market Data.
Outflows in the Largest Israel Tracker
With $131 million in assets under management, EIS is the largest ETF tracking the Israeli region. Although the fund witnessed modest inflows of $5.4 million last week, it has experienced a total outflow of $2.6 million so far in 2023, based on FactSet data.
Other ETFs Join the Decline
The VanEck Israel ETF (ISRA) experienced a drop of 6.6%, while the BlueStar Israel Technology ETF (ITEQ) fell by 3.8%, according to FactSet data.
One notable fund, Cathie Wood’s ARK Israel Innovative Technology ETF (IZRL), also faced an immediate test, recording a 5.7% drop on Monday. Investors are closely monitoring events in the Middle East to assess the potential risks to financial markets.
Related: From $150 oil to no impact at all: What the surprise attack on Israel means to markets
The Israel-Hamas Conflict Shakes Global Financial Markets
The Israel-Hamas conflict has sent shockwaves through global financial markets. In response to a surprise attack by the Palestinian militant group over the weekend, Israel declared war on Hamas, resulting in the deaths of more than 1,100 people and leaving thousands injured on both sides, as reported by the Associated Press.
Geopolitical Risks Drive Demand for Safe Assets
The escalating geopolitical risks have triggered a surge in demand for safe-haven assets such as gold and the U.S. dollar, while stimulating interest in U.S. Treasuries.
According to FactSet data, gold futures expiring in December (GC00) rose 1.1% to $1,865.80 per ounce on Comex. In addition, the ICE U.S. Dollar Index (DXY), which measures the strength of the dollar against a basket of currencies, gained 0.2% to reach 106.24.
U.S. Stocks Take a Dip
U.S. stocks experienced a slight decline on Monday. The S&P 500 (SPX), a prominent large-cap benchmark, was down 0.2%, while the Dow Jones Industrial Average (DJIA) lost 0.1%, and the Nasdaq Composite (COMP) fell 0.6%, according to FactSet data.