Over 70 Percent of Israeli Jews Oppose Arab Parties in Government, Survey Finds

The Israel Democracy Institute's Democracy Index finds deep polarization and declining institutional trust: 71.5% of the Jewish public oppose inclusion of Arab parties in government while 77% of the Arab public support it, and Jewish support for inclusion fell from ~36% in May 2023 to 27% in the latest poll. Confidence in Israeli democracy is weak (only ~25% of Jews and 12% of Arabs rate it good or excellent), trust in Attorney General Gali Baharav-Miara is low among Jews (39%, sixth-ranked) but relatively higher among Arabs (35%, second-ranked), and the sample comprised 1,569 adults (1,205 Jewish, 364 Arab), underscoring rising political risk and potential implications for governance and policy predictability.

Analysis

Market structure: Political polarization and collapsing trust in institutions materially shifts relative demand away from domestic-facing Israeli equities (retail, real estate, local banks) toward security and globally-exporting tech/cyber firms. Expect EIS-like Israel beta to underperform global defensives by 5–15% in stressed 1–3 month windows while defense contractors (e.g., ESLT) outperform on higher odds of increased defense budgets.

Risk assessment: Tail risks include coalition collapse, widescale protests, or punitive foreign investor flows (low-probability, high-impact) that could widen IL 10y spreads +50–150 bps and send TA-35 down >10% within weeks–months. Monitor short-dated triggers: IL 10y +40–50 bps, TA-35 -5% in 7 days, or USD/ILS appreciation >3% — these increase probability of persistent dislocation.

Trade implications: Near-term (days–weeks) favor hedges: buy protection on Israel exposure and reallocate 1–3% portfolio weight into ESLT and CHKP over 3–9 months; use pair trades (long security/cyber, short Israel broad ETF EIS) to express relative value. Use 1–3 month ATM or 5–10% OTM puts to limit drawdowns and catalysts (government dismissals, judicial overhaul votes) as entry/exit triggers.

Contrarian angles: Consensus assumes prolonged instability; missing is the chance that a stable hard-line coalition could implement market-friendly tax/regulatory changes, sparking a sharp local rebound — a 15%+ overshoot lower in EIS would likely reverse within 6–12 months. Historical parallels (regional shocks 2014–2016) show short pain and medium-term recovery, so size hedges to avoid missing upside while protecting downside.

Key Decisions for Investors

• Establish a 2–3% portfolio long in Elbit Systems (ESLT) over 3–9 months targeting 15–25% upside if defense budgets rise; place a protective stop at -12% and scale out at +15% and +25%.
• Purchase 3-month ATM puts on the iShares MSCI Israel ETF (EIS) equal to ~50% of Israel exposure (or 1% of total portfolio notional) to cap downside risk for the next 90 days; roll or reassess if TA-35 declines >8% or IL 10y rises >50 bps.
• Implement a pair trade: long Check Point Software (CHKP) 1–2% vs short EIS 1–2% to capture relative safety of global cyber revenues; rebalance if CHKP outperforms by >20% or EIS falls >15%.
• Prepare to go long USD/short ILS (forwards or FX spot) sized to 0.5–1% portfolio IF USD/ILS moves >+3% or IL 10y rises >40 bps within a 30-day window; target reversion or close within 90 days to avoid duration risk.