Israel does not fit neatly into traditional risk frameworks. In most markets, geopolitical instability drives capital away: investors reprice risk, liquidity tightens and transaction volumes fall. By that logic, the ongoing war with Iran would be expected to trigger a meaningful retreat of international capital.
Yet Israel operates differently. Volatility is not viewed as a temporary deviation from stability, but as a long-standing feature of the market. Risk is therefore priced accordingly. Rather than prompting wholesale withdrawal, periods of escalation tend to drive more selective allocation, with capital concentrating in sectors and assets perceived to be resilient.
Part of the explanation lies in how markets interpret risk. Investors are forward-looking rather than purely reflective of current conditions. In Israel’s case, many view the economy as having substantial, still-unrealised upside. The primary constraint has long been the security environment, which limits international connectivity, introduces volatility and imposes structural costs on economic activity.
In that context, periods of conflict are not always interpreted solely as an increase in short-term risk. Where there is a perception that Israel is operating from a position of strength, and that current events may contribute to a more stable long-term regional environment, this can instead be seen as the partial removal of a structural constraint. In other words, it restores visibility on underlying growth potential rather than diminishing it.
This dynamic differs materially from more mature markets such as the UK or US, where expected growth is more moderate and economies are often perceived as closer to saturation. In those markets, geopolitical shocks typically result in downward revisions and capital outflows. In Israel, shifts in expectations can produce a more non-linear response, as the baseline assumption is one of significant unrealised growth potential.
That dynamic has been visible in recent market behaviour. Reporting suggests foreign investors have continued allocating capital to Israeli markets, including increased participation on the Tel Aviv Stock Exchange during periods of escalation. At times, this has been accompanied by a strengthening of the shekel and resilient equity performance, reinforcing the view that investor behaviour is not aligning with conventional expectations.
A useful illustration is the investment made by Bill Ackman, through Pershing Square Capital Management, in the Tel Aviv Stock Exchange in early 2024. This was executed during one of the most challenging periods for the Israeli market, shortly after the horrific events of October 7. The investment was based on a view that the asset was materially undervalued, with short-term risks overestimated relative to long-term fundamentals.
Subsequent market performance saw a sharp repricing, with the exchange’s share price increasing significantly as confidence returned. While the transaction itself was complex, the broader takeaway is clear: periods of uncertainty can create a dislocation between price and underlying value. Investors with a long-term perspective and a strong understanding of the local context may view these moments not as a reason to exit, but as a point of entry.
The pattern extends beyond public markets. Israel’s technology sector continues to attract significant investment, with billions of dollars raised during periods of heightened uncertainty, much of it from international investors deeply embedded in the ecosystem.
Part of the explanation lies in economic structure. High-tech contributes approximately 17–20% of GDP and accounts for more than half of exports, concentrating value in sectors that are globally integrated and less sensitive to local disruption. Israel’s growing role as a defence and technology exporter has reinforced this further, with record export levels in recent years and increasing demand from European markets.
This helps explain why capital continues to enter the market. It does not, however, explain what happens once that capital arrives.
There is a tendency in macro commentary to treat capital flows as an endpoint. In practice, they are only the starting point. The more complex question is how effectively that capital can be deployed on the ground.
For international investors, particularly those operating across jurisdictions, Israel presents challenges that are not always immediately visible. Legal and regulatory frameworks differ in important ways from those in the UK, US or Europe. Planning processes can be lengthy and non-linear. Transactions frequently involve multiple stakeholders, layered ownership structures and bespoke contractual arrangements.
These factors do not deter investment, but they do shape outcomes.
In many cases, the key risks are not those that dominate initial investment discussions. They emerge later, during execution: delays in planning approvals, misalignment between partners, or structural issues that were not fully addressed at the outset. For investors unfamiliar with the local environment, these risks can be difficult to anticipate and easy to overlook.
This is particularly relevant for diaspora investors, who often approach the market with a combination of financial and personal motivations. While this can create long-term commitment, it can also lead to assumptions that the investment environment will operate in a similar way to more familiar jurisdictions. In practice, the differences are material.
This dynamic is also evident in real estate, where there is a well-documented structural undersupply of housing. During periods of instability, some of that underlying pressure is not fully expressed. As and when the environment is perceived as more stable, that imbalance can translate more sharply into increased activity and price movement.
None of this diminishes the central point. Capital continues to flow into Israel because, on balance, investors see long-term opportunity. The country’s economic foundations, particularly in technology and innovation, remain compelling. Its structural housing shortage continues to support real estate demand. And its integration into global capital markets ensures that it remains within the allocation framework of international investors.
But capital flows are only a measure of success if that capital can be deployed efficiently, structured appropriately and protected over time. That requires a level of local understanding that goes beyond macroeconomic analysis. It involves navigating regulatory processes, anticipating points of friction and aligning legal structures with commercial objectives.
In that sense, the resilience of Israel’s economy is only part of the story. The other lies in how that resilience is translated into successful transactions on the ground.
Global capital will continue to find its way into Israel it is important that those of us who are embedded in the market ensure it is effective once it does.