2025 is on the way to being a peak year for the Israeli stock market, with rises of 50% for the leading indices and records broken at a rate not seen in two decades. The sharp rises are a result of a huge influx of money into the stock market, and the decline in Israel’s risk premium.
The performance of the Tel Aviv Stock Exchange shot Israel into third place in “The Economist”’s ranking of the world’s best performing economies (Portugal came first). “The Economist” singled out the local stock market as the top performer in equity markets in local currency terms.
The great beneficiaries of the rises on the Tel Aviv Stock Exchange are the foreign investors, who returned big time after two years of abandonment, channeling billions of shekels into local stocks.
According to a recent study by Yuval Zuk of the Tel Aviv Stock Exchange research unit, the value of holdings by overseas financial institutions in stocks on the Tel Aviv Stock Exchange (excluding dual-listed stocks) has reached a peak of $19.2 billion (NIS 63.5 billion), double the figure before the war. This represents about 10% of the value of the total public holdings in stocks on the Tel Aviv 125 Index list.
Foreign investor money began exiting the Tel Aviv Stock Exchange before the war. In his study, Zuk finds that foreign investors reduced their holdings starting from the second quarter of 2023, in the shadow of 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 was $9.1 billion (NIS 34.7 billion).
After that, following the outbreak of the Swords of Iron war, there was a heavy sell-off. The low was reached at the end of the first half of 2024, when foreign investor holdings in Tel Aviv Stock Exchange stocks fell to $7.9 billion (NIS 29.7 billion).
But then came a turnaround, and the foreigners returned, on a large scale. The exploding pager operation against Hezbollah operatives, the elimination of the Hamas leadership, and the ending of the military campaign in the north and then in the south, all led to a reversal of sentiment on the part of foreign investors. They bought massively on the stock market, and the value of their holdings soared.
In the first nine months of 2025, the rising trend of exposure of foreign financial institutions to stocks in Tel Aviv strengthened, and was manifest in a 70% leap (in US dollar terms) in the value of their holdings in non dual-listed stocks. The value had doubled within two years.
This rise, the stock exchange stresses, stemmed not just from the sharp rise in the prices of stocks held by foreign investors, but also from the entry of new money. Stock purchases by foreign investors in 2025 amount to $2.3 billion (NIS 8.1 billion).
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According to the stock exchange study, about two-thirds of the investment by foreign financial institutions is in exchange traded funds (ETF), in line with the global trend of growth in passive investment. Accordingly, the two largest overseas holders of local stocks are the international ETF firms Vanguard and BlackRock. Together, the two firms hold almost half of the total holdings of foreign investors (46%) in stocks that are not dual-listed.
In third place is Dimensional Fund Advisors, which manages both active and passive funds, followed by other investment funds, including Fidelity International.
The stock exchange points out that despite the sharp overall increase in total investment by foreign institutions, since the fourth quarter of 2023, when the war broke out, institutions in several countries have reduced their holdings in stocks traded in Israel.
These are headed by the Norwegian sovereign wealth fund, which has announced the liquidation of its holdings in several Israeli stocks. Canadian bank ScotiaBank’s 1832 Asset Management division also stands out on the negative side, as does Netherlands pension fund PGGM and South African financial services group Old Mutual.
Finance and real estate head the list
A glance at the stocks preferred by foreign investors shows that the financial sector is their main focus, accounting for 70% of their total holdings, with 56% concentrated in the five major Israeli banks. The choice of financial stocks paid off for the foreign investors this year. The Banks5 Index has jumped 71% this year, and the Insurance Index has soared 165%, making it the best performing index on the Tel Aviv Stock Exchange. Among stocks that are most prominent in the portfolios of the foreign investors are Phoenix Financial (up 186%), Harel (up 180%), Clal Insurance (up 155%) and Menora Mivtachim (up 187%).
“There is international interest in the insurance companies, and there’s no doubt that the performance of this sector has contributed greatly to the growing interest in it in the past two years. But I think that the fact that many of the financial companies actively promote themselves vis-à-vis foreign investors also contributes to this.,” says Ron Klein, EVP of Listings and head of the Economic Department at the Tel Aviv Stock Exchange.
Stocks of the big real estate companies on the Tel Aviv Stock Exchange also take a substantial slice of the foreign investors’ portfolios, about 12% of the total. Top of the list are Azrieli Group, Melisron, Mivne, and Amot. Also prominent is defense company Next Vision, which in an offering held a few months ago raised NIS 1.4 billion, mainly from overseas entities. Its share price has risen by more than 1,700% in the past three years, and it was recently promoted to the stock exchange’s flagship Tel Aviv 35 Index.
Absent from the foreign investors’ favorites are energy stocks, such as OPC and NewMed, which, despite their high market caps, don’t attract foreign interest. “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,” says Klein.
“Accelerating globalization”
Alongside the improvement in sentiment towards the Israeli economy, the stock exchange also points to structural changes that it has undergone that encourage foreign investment. “There are several elements that combine,” says Klein. “First of all, the geopolitical situation has improved, and in recent months Israel’s risk premium has shrunk, bringing foreign investors back to the market. In addition, the foreigners saw clearly how the country and the market functioned during the war and were impressed by our resilience.
“Furthermore, in the past few years the market has undergone an accelerated process of globalization thanks to structural changes. We have reached a situation today in which 86% of the stocks on the Tel Aviv 125 Index list have average daily turnovers of over $1 million, making more companies relevant from the foreigners’ point of view.”
Another change that the Tel Aviv Stock Exchange expects will contribute to trading volumes and interest on the part of foreign institutions is the planned switch to Monday to Friday trading, due to take place in January. “The move will happen, because in-depth examination found that Friday trading was important to overseas investors. I therefore believe that in the long term we shall see this very much supporting globalization of the market and the penetration of foreign investors. But these are processes that take time. We have to give the market time to get used to it,” Klein adds.
Published by Globes, Israel business news – en.globes.co.il – on December 15, 2025.
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