The year 2025 has been a game-changer for the Israeli stock market, with leading indices soaring by an incredible 50% and breaking records not seen in over two decades. This surge in activity is a direct result of a massive influx of foreign investment and a decline in Israel's risk premium.
The Tel Aviv Stock Exchange (TASE) has been a key player in this success story, propelling Israel to the third spot in The Economist's ranking of the world's best-performing economies. The local stock market, in particular, has been highlighted as the top performer in equity markets when measured in local currency terms.
But here's where it gets controversial... The primary beneficiaries of this stock market boom are foreign investors, who, after a two-year hiatus, have returned in full force, injecting billions of shekels into local stocks.
According to a recent study by Yuval Zuk from TASE's research unit, the value of holdings by overseas financial institutions in TASE stocks (excluding dual-listed stocks) has peaked at a staggering $19.2 billion (NIS 63.5 billion), which is double the pre-war figure. This represents a significant 10% of the total public holdings in stocks on the Tel Aviv 125 Index list.
Foreign investor money had been exiting the TASE before the war. Zuk's study reveals that foreign investors started reducing their holdings from the second quarter of 2023, amidst the battle over the Israeli government's judicial overhaul program. By the end of September that year, their aggregate investment in the local stock market stood at $9.1 billion (NIS 34.7 billion).
However, the outbreak of the Swords of Iron war led to a heavy sell-off, with foreign investor holdings in TASE stocks hitting a low of $7.9 billion (NIS 29.7 billion) by the end of the first half of 2024.
But then, a remarkable turnaround occurred. Foreign investors returned in droves, attracted by the successful military operations against Hezbollah and Hamas, and the subsequent ending of the military campaigns in the north and south. This shift in sentiment led to a massive buying spree on the stock market, causing the value of foreign investor holdings to skyrocket.
In the first nine months of 2025, the trend of increasing exposure of foreign financial institutions to TASE stocks continued, with a 70% leap (in USD terms) in the value of their holdings in non dual-listed stocks. This rise was not just due to the sharp increase in stock prices but also the entry of new foreign investment, with foreign investors purchasing $2.3 billion (NIS 8.1 billion) worth of stocks in 2025 alone.
And this is the part most people miss...
The TASE study reveals that about two-thirds of foreign financial institution investment is in exchange-traded funds (ETFs), reflecting the global trend of growth in passive investment. Consequently, the two largest overseas holders of local stocks are the international ETF firms Vanguard and BlackRock, which together hold almost half (46%) of the total holdings of foreign investors in non dual-listed stocks.
In third place is Dimensional Fund Advisors, followed by other investment funds like Fidelity International. Interestingly, despite the overall increase in foreign investment, institutions from several countries, including Norway's sovereign wealth fund, Canadian bank ScotiaBank's 1832 Asset Management division, Netherlands pension fund PGGM, and South African financial services group Old Mutual, have reduced their holdings in Israeli stocks since the fourth quarter of 2023.
When it comes to the stocks preferred by foreign investors, the financial sector takes the lead, accounting for a whopping 70% of their total holdings, with 56% concentrated in the five major Israeli banks. This year, the Banks5 Index has jumped an impressive 71%, and the Insurance Index has soared a staggering 165%, making it the best-performing index on the TASE. Some of the most prominent stocks in foreign investor portfolios include Phoenix Financial (up 186%), Harel (up 180%), Clal Insurance (up 155%), and Menora Mivtachim (up 187%).
Ron Klein, EVP of Listings and head of the Economic Department at the TASE, attributes this international interest in insurance companies to their strong performance over the past two years. He also believes that the active promotion of financial companies to foreign investors has played a significant role.
Stocks of the big real estate companies on the TASE also feature prominently in foreign investor portfolios, accounting for about 12% of the total. Azrieli Group, Melisron, Mivne, and Amot are at the top of this list, followed by defense company Next Vision, whose share price has risen by over 1,700% in the past three years, leading to its recent promotion to the TASE's flagship Tel Aviv 35 Index.
Interestingly, energy stocks like OPC and NewMed, despite their high market caps, have not attracted foreign interest. However, Klein predicts a shift in this trend, stating, "If I had to guess, I'd say that we will see growing interest in energy stocks as well in the near future. Up until a few years ago, there were just a few stocks that attracted interest among foreign investors, and today we are seeing more and more such stocks."
The TASE attributes this influx of foreign investment to not just the improved sentiment towards the Israeli economy but also to structural changes that have encouraged foreign investment. "There are several elements that combine," says Klein. "Firstly, the geopolitical situation has improved, and Israel's risk premium has decreased, attracting foreign investors back to the market. Additionally, foreign investors were impressed by Israel's resilience during the war."
Furthermore, the TASE has undergone an accelerated process of globalization in recent years, thanks to structural changes. Today, 86% of the stocks on the Tel Aviv 125 Index list have average daily turnovers of over $1 million, making them more attractive to foreign investors.
Another change expected to boost trading volumes and foreign institution interest is the planned switch to Monday to Friday trading, scheduled for January. "The move will support the globalization of the market and the penetration of foreign investors in the long term," Klein adds.
Published by Globes, Israel business news - en.globes.co.il - on December 15, 2025.
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