RISING TIDES
Observations from the IMC Research Process

War Time Rally:

Israeli equities are rewriting the playbook on geopolitical risk

Despite an active war and regional instability, Israeli equities are making new all-time highs, Israeli GDP is booming, and investors are piling in.

• Valuation overhaul. For decades, Israeli stocks traded at a persistent geopolitical discount, but that narrative is fading. With ~20% of GDP driven by high-tech industries – nearly double the OECD average – Israel’s innovation engine is back in gear. Investors are responding as startup capital raised surged 54% YoY in 1H25.
• Confidence flows in. The Israeli shekel is at its strongest level in over two years, signaling a broad re-rating of risk and renewed investor confidence. Foreign investors have been net buyers of Israeli stocks in recent months, with $1.2 billion in net inflows since late 2024. At the sovereign level, Israel continues to run a manageable fiscal deficit and holds reserves exceeding 40% of GDP—providing macro flexibility rarely seen in conflict-affected regions.
• Equities break out.EIS (the MSCI ETF that has just local Israeli stocks) and ISRA (the Van Eck ETF that includes globally listed Israeli stocks) and are both making new highs. At a stock level, leadership isn’t narrow – across sectors like insurance, defense, banks, construction, and chemicals, over 30% of the Tel Aviv 125 constituents have printed 52-week highs.