The lesson of remaining calm during stock market declines is one many long-term investors are familiar with. Reacting hastily to a market drop often results in missing the subsequent rebound, a common pitfall for those focused on short-term fluctuations.

A clear example of this can be seen in the actions of foreign investors on the Tel Aviv Stock Exchange (TASE) during the Iron Swords War. After the war began, foreign investors sold shares worth billions of shekels, only to start returning months later. By then, they had missed significant gains—nearly 30%—in the Tel Aviv market’s flagship indices, which had reached their lowest points three weeks after the war’s onset.

Despite initial uncertainty, TASE’s performance since that low point has rivalled some of the top global stock exchanges. The TA-125 index climbed by 27%, and the TA-35 by 28.1%, similar to the Nasdaq 100’s 28.1% rise and the S&P 500’s 29.2% increase. Other global markets, such as the German DAX (22.8%) and Japanese Nikkei (16.4%), lagged behind. The Hong Kong Hang Seng index rose only 2.5%.

Yaniv Pagot, Senior Vice President of the Tel Aviv Stock Exchange, points out that Israel’s market has been performing remarkably well compared to many developed countries. However, in public discourse, comparisons are often made only with the U.S. stock markets. Investors largely overlook Israel’s strong performance relative to other global markets like Australia, Canada, and Switzerland.

Foreign investors largely missed out on these gains. Data from the stock exchange show that from the beginning of the war until August, foreign investors sold a net amount of nearly NIS 7 billion in shares. This contrasted with earlier in 2023 when they purchased a net NIS 2.2 billion in shares, even amid concerns over judicial reforms. The highest foreign sell-off occurred in October, with a net sale of NIS 2.3 billion, after which the selling pace gradually slowed. By July and August, foreign investors were net purchasers again, buying nearly NIS 1.8 billion in August alone.

Alon Sanovsky of Migdal Insurance and Finance suggests that foreign investors are shifting focus from external noise to fundamental valuations, which have become more attractive. This shift comes despite Israel’s challenging circumstances: the ongoing war, a growing deficit of over 8%, credit rating downgrades, and fears of regional conflicts.

Notably, local institutional investors, such as pension fund managers, absorbed much of the stock sold by foreign investors. Since the war’s start, local institutions purchased NIS 9.2 billion in net shares, while portfolio managers added NIS 4.4 billion. In contrast, local mutual funds were net sellers, offloading NIS 7.8 billion.

The resilience of the Tel Aviv market has surprised many. Despite grim forecasts, August saw unexpected gains, with trading volumes surging. Daily turnover increased by 23% within a year, averaging NIS 1.9 billion in August. Since the beginning of 2024, the average daily turnover on TASE grew by 4%, reaching NIS 1.83 billion.

Whether foreign investors’ renewed activity represents a trend shift remains uncertain. Experts caution that while their return is noteworthy, it is still early to draw conclusions. They also emphasize that the local market has been sustained by institutional investors and stable “strong hands”—investors less prone to reacting impulsively to news events.

In conclusion, while some investors fled the Tel Aviv market during times of crisis, those who held their positions, particularly local institutional players, have been rewarded. The market’s recovery underscores the importance of maintaining a long-term perspective, especially during turbulent periods.