Foreign Investors Flee Israeli Stock Market Amid Election Uncertainty

Foreign investors have dramatically reduced their activity on the Tel Aviv Stock Exchange, with net stock purchases by non-residents totaling only NIS 400 million over the past 12 months. This represents a sharp decline of approximately 95.5% compared to the previous year, according to data published by "Calcalist." The banking sector, considered a barometer of the Israeli economy, has seen the most significant shift. While foreign investors injected billions of shekels into bank stocks last year, they became net sellers in the first nine months of this year, withdrawing about NIS 4.9 billion from the sector. A similar trend was observed in the insurance industry, where foreign investors moved from net buyers to net sellers. This retreat is attributed to uncertainty surrounding the upcoming Knesset elections in late October and concerns about their potential impact on economic policy, prompting investors to temporarily reduce their exposure to Israel.

Despite the overall downturn, specific sectors like technology and real estate have experienced an increase in foreign investment. A reform that shifted trading days from Sunday-Thursday to Monday-Friday aimed to boost trading volumes and international investor participation. While it succeeded in improving liquidity, this enhanced liquidity has primarily facilitated foreign investors exiting the market rather than injecting new capital. Israeli institutional investors and mutual funds have attempted to fill the gap, continuing to increase their exposure and purchase bank stocks.

While the TA-35 index shows positive returns year-to-date, these gains are concentrated in a few heavy stocks. The majority of stocks in the TA-125 index are trading in negative territory. The withdrawal of foreign capital, coupled with approximately NIS 16.5 billion in sales by Israeli corporations, raises significant questions about the stability of the local market in the post-election period.