Foreign Investors Cut Exposure to Tel Aviv Stocks Amid Election Uncertainty
Foreign investments in the local stock market dropped significantly over the past year, falling to 400 million NIS amid political uncertainty ahead of the October 27 elections.
Foreign investors have drastically cooled their activity in the local stock market, purchasing a mere 400 million NIS in shares over the past 12 months. This represents an 18-fold drop, or 95.5% less than the volume acquired during the previous period, largely driven by political uncertainty ahead of the upcoming Knesset elections scheduled for October 27.
An investment banker working with international investors told Calcalist that talks with foreign entities indicate that a potential victory for the current administration could lead to ongoing turbulence detrimental to the Israeli economy. Consequently, offshore investors are seeking to reduce their exposure, at least temporarily.
Dramatic Shifts in the Banking Sector
The broader numbers mask a fundamental shift within the Israeli banking sector, which traditionally serves as a proxy for the nation's economic growth. Foreign investors have transitioned from major buyers to significant net sellers. During the first nine months of the year, non-residents sold 4.9 billion NIS in bank shares net, compared to a net purchase of 6.7 billion NIS in the same period last year.
Insurance stocks have experienced a similar cooling effect. Following net purchases of 1.21 billion NIS in the first three quarters of 2025, foreign investors turned into net sellers of 84 million NIS in insurance shares this year.
Increased Trading vs. Reduced Net Exposure
This contraction in foreign investment is particularly striking given the Tel Aviv Stock Exchange's successful efforts to boost trading activity. Shifting the trading week from Sunday-Thursday to Monday-Friday aimed to align local markets with global hubs and bridge the gap with international investors.
Research by the Israel Securities Authority showed that average turnover on Fridays reached 2.6 billion NIS, up from 1.3 billion NIS on Sundays previously, with foreign participation surging from 15.3% to 38.2%. However, increased trading does not equate to increased exposure; foreigners are utilizing higher liquidity to realize existing holdings rather than injecting fresh capital.
"We see a clear ongoing trend during 2026 of the Israeli public increasing its exposure to the local equity market, with the bulk of capital inflows coming through mutual funds, portfolio managers, and institutional entities," said Nisan Abraham, an analyst at the TASE research unit.
Domestic Institutions Step In
While foreign capital recedes, local institutional players and mutual funds continue to absorb market volatility. Pension funds, provident funds, and insurance companies purchased 2.47 billion NIS in bank shares net since the beginning of the year, while mutual funds added another 3.7 billion NIS, demonstrating robust local demand despite foreign sell-offs.
