Foreign Investors Shed Israeli Stocks Amid Political Uncertainty

Foreign investors have significantly reduced their net purchases of shares on the Tel Aviv Stock Exchange (TASE) over the past year, with net acquisitions plummeting by approximately 70%. In the last 12 months, foreign entities bought only NIS 400 million in stocks, a stark contrast to the NIS 7.2 billion purchased in the preceding year. This decline is attributed, in part, to uncertainty surrounding the upcoming Knesset elections on October 27.

Investment bankers report that foreign investors are concerned a victory by the current government could lead to economic instability, prompting them to reduce their exposure to the Israeli market, at least temporarily. This sentiment is particularly evident in the banking sector, which foreign investors have shifted from being major buyers to significant sellers. From January to September, foreign investors sold NIS 4.9 billion in bank stocks net, compared to net purchases of NIS 6.7 billion in the same period last year. The insurance sector has also seen a reversal, with foreign investors becoming net sellers after previously being net buyers.

Despite the overall downturn in foreign investment, there are exceptions. Foreigners have increased their exposure to technology stocks, with investments rising to over NIS 4 billion in the first three quarters of the year, up from NIS 2.5 billion in the same period last year. Real estate stocks have also seen a surprising increase in foreign investment.

Concurrently, the TASE has seen increased trading activity from foreign investors since shifting its trading week to Monday-Friday. While this has boosted trading volumes, particularly on Fridays, it has not translated into increased net buying, suggesting foreigners are using the enhanced accessibility to liquidate existing holdings rather than make new investments.

In contrast to foreign investors, domestic institutional investors, including pension funds, provident funds, and insurance companies, have increased their net purchases of bank stocks, acquiring NIS 2.47 billion in the first three quarters of the year. This local demand has helped offset some of the selling pressure. However, Israeli corporate entities have been the largest net sellers of stocks this year, offloading approximately NIS 16.5 billion in the first nine months, with a significant portion in technology stocks.