The shift in sentiment accelerated as geopolitical risk began to ease. Following military operations in the north against Hezbollah and a brief but intense conflict with Iran, markets started to price in a lower risk premium. That reassessment coincided with firmer economic signals, including renewed growth, rising foreign investment, and a strong recovery in equity prices.

Deal activity played a central role. A landmark natural gas export agreement with Egypt – the largest in Israel’s history – committed the supply of roughly 130 billion cubic metres of gas through 2040 in a deal valued at about $35 billion, underscoring the scale of prospective foreign-currency inflows and reinforcing Israel’s position as a regional energy supplier. Alongside energy, defense exports expanded sharply. Strong battlefield performance translated into a growing pipeline of procurement orders – from major contractors to smaller specialist firms – creating steady demand for shekels.

Technology exits amplified the effect. The announced acquisition of Israeli cyber company Armis by ServiceNow in a cash deal valued at roughly $7.75 billion – one of the largest technology exits in Israel in recent years – bolstered the currency even before funds had entered the country. Market participants treated the announcement itself as a signal of confidence in Israel’s high-tech sector and its ability to generate large-scale US dollar inflows. Such deals tend to trigger anticipatory positioning by investors and institutions, reinforcing the shekel’s strength through expectations of future currency conversions, employee payouts, and reinvestment flows. In this sense, sentiment and signalling proved nearly as powerful as the capital movements themselv

Capital flows from institutional investors provided an additional tailwind. Gains in global equities prompted Israeli companies with foreign exposure to trim US dollar positions as part of routine hedging adjustments, supporting the Israeli shekel. The resulting rise in asset values helped sustain this pattern, embedding it in currency markets.

Currency strength did not emerge in isolation, and Israel’s equity market reflected the same shift in sentiment. The Tel Aviv Stock Exchange closed 2025 with gains of 51.6%, following a 28.4% rise the previous year, even amid prolonged security tensions. The gains were led by technology, defence, energy and financial stocks – sectors closely aligned with the forces supporting the shekel.

A stronger Israeli currency helped contain import costs in an economy that remains heavily dependent on foreign goods. With Israel importing close to $92 billion worth of goods in 2024, the shekel’s appreciation eased price pressures across energy, food, and manufactured inputs, while improving balance-sheet conditions for domestically focused companies. In the meantime, international investors, encouraged by calmer security conditions improved macro signals, increased exposure to Israeli assets. The rally underscored a broader point: the shekel’s strength was not an abstract monetary development, but the byproduct of sustained capital inflows interacting with a trade-intensive economy.

For households, however, the most immediate effect of a stronger shekel was felt in prices. Currency appreciation helped moderate import costs, contributing to a 0.5% decline in the consumer price index in November. Annual inflation stabilised at 2.4% placing it squarely within the Bank of Israel’s target range of 1% to 3%. At a time when many economies continued to struggle with persistent price pressures, the Israeli shekel acted as a disinflationary force.

Israeli policymakers, however, remained cautious. While goods inflation eased, services inflation – less sensitive to exchange-rate movements – remained elevated. A tight labor market, characterized by low unemployment and high job vacancies, continued to exert upward pressure on wages. Fiscal uncertainty added to the caution, as budget discussions pointed to a widening deficit.

Against this backdrop, the Bank of Israel maintained a cautious stance. After cutting interest rates by 0.25% in November, the central bank signalled no urgency to move further, despite market speculation. Policymakers stressed that exchange-rate strength was only one consideration, alongside growth, labor-market conditions, fiscal discipline, and security risks.

That restraint reflects the trade-offs inherent in a stronger currency. Exporters face margin pressure, and a sustained rally can test competitiveness. Even so, economists argue that Israel’s export base – centred on high-value technology, defense, and energy – has so far shown sufficient resilience to withstand a stronger shekel.

Taken together, the shekel’s appreciation of 14.3% in 2025 against the US dollar captured a change in how markets priced Israel’s economic and geopolitical outlook. Improved security conditions, large-scale export activity, capital inflows and a resilient corporate sector combined to support the currency at a time when policy remained deliberately cautious. Whether the strength proves durable will depend less on exchange-rate policy than on the balance between growth, fiscal discipline and regional stability. For now, the shekel stands as a signal of renewed confidence, moderated by the constraints and risks that continue to influence Israel’s economy.

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Nvidia’s multi-billion-shekel investment is neither symbolic nor incidental. With the ability to deploy capital almost anywhere in the world, Nvidia chose to place long-lived, mission-critical AI infrastructure in Israel—signaling confidence in the country’s technological depth and long-term reliability.

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To understand where Israel is today, one must see how its past cultivated many of its present strengths. From its very early days, Israel made heavy investments in education, science, and defense. The famous Unit 8200 (the intelligence corps’ signals unit) trained many of the people who later left government service to found tech firms. Those roots in military R&D are not some odd byproduct of necessity – they shaped a culture of rapid prototyping, of solving hard problems under pressure, and of intense collaboration. These are precisely the qualities investors seek in frontier markets. As Jonathan Medved’s OurCrowd shows, even relatively young investment platforms in Israel tap into that reservoir of domestic talent in science, engineering, cybersecurity, AI – areas where global growth is high.

Over the decades Israel has transformed. No longer only a defensive frontier, it has become “Startup Nation” because every new wave of crises has been matched by waves of new enterprise. In the late 1990s and early 2000s, Israel’s high-tech sector was already expanding rapidly, becoming a key driver of the economy. The Shoresh Institution’s research confirms that high-tech’s share of GDP nearly doubled from 9% in 1995 to over 17% by 2000, then remained relatively stable through the following decade, with renewed returning after 2018.

Today, investors see beyond metaphor, they actually see numbers. Foreign direct investment (FDI) has been growing over the past decade. Even during times of conflict – yes, even war – investment into Israeli tech has shown surprising resilience. In the first six months of 2025, Israeli startups raised about $9.3 billion in private capital across 365 funding rounds, up 54% from the second half of 2024. What changed in composition matters: more large rounds in mature companies, more emphasis on cybersecurity, fintech, enterprise software. These are bets not on hope, but on proven capacity.

If the past built the foundation, the present is testing it under real weight. The war that broke out in October 2023 posed many risks – geopolitical, operational, human. Some international investors hesitated. Some companies saw business disruption. Yet many others leaned in, recognizing that the long-term story of Israel is not about war alone, but about deep technology, export orientation, government support, and global partnerships. The Israel Innovation Authority, the emphasis on export accounts, the trade surpluses in certain sectors even amid conflict – all of this signals that the economy has more than one pillar.

Sources: Bank of Israel, IVC Data and Insights, Central Bureau of Statistics, CapIQ as of July 7, 2025. (1) 2024A Full Year Numbers. Central Bureau of Statistics as of December 31, 2024 . (2) Bank of Israel’s Research Department Staff Forecast Report (July 7, 2025). (3) As of May 31, 2025.

Let me share a story of two investor archetypes (without naming names) that illustrates how past and future collide. First, there’s the global institutional investor – let’s say it is a sovereign wealth fund – that came into Israel years ago, drawn by highly skilled engineers and access to defense-technology start-ups. Over time that investor saw healthcare start-ups, AI firms, quantum research, and agro-tech. They stayed through turbulence because the tailwinds of innovation were strong, and because they believed Israel’s institutions – its universities, its venture ecosystem – would continue to deliver. Then there’s the founder-investor, someone who served in the IDF, left with connections, a mindset of solving mission-critical problems, then built a company that got acquired by a tech giant. That person then reinvests in new start-ups, mentors, builds incubators. That loop – founder to re-investor to founder again – is part of what powers the bridge between past and future. It is not mythical; it is visible in firms like Jerusalem Venture Partners, in OurCrowd, in many smaller players. Corner Ventures+3Wikipedia+3Wikipedia+3

Looking ahead, what should potential investors watch for – and what makes Israel not just interesting, but potentially exceptional?

First, deep tech. Israel now has over 1,500 Deep Tech companies, and since 2019 those companies have attracted over $28 billion in investments. Fields like photonics, quantum computing, digital health, advanced manufacturing, food-tech – all are growing rapidly from strength. Second, cybersecurity remains a core asset. In periods of relative calm or conflict, demand for cybersecurity and related tech only increases. Israeli firms are globally competitive there. Third, mature rounds are becoming more important – less speculation, more scaling. Investors are increasingly backing companies beyond seed stages, betting on traction and revenue as well as on the promise of what might yet be.

Yet, challenges remain, and no bridge is without its gaps. Geopolitical risk is real. Investor sentiment is fragile; legal or regulatory changes can carry outsized weight in perception. Infrastructure and cost pressures (real estate, talent competition, international liability etc.) are growing. And while many companies export, Israel is relatively small, which means scaling globally is not optional but essential. Also, the macro picture – fiscal deficits, war-driven expenditures, debt burden – ask for caution.

What Israel offers, if one leans in, is something uncommon: a place where past lessons in survival, innovation, academic strength, and problem-solving under constraint combine with a future orientation that seeks not merely growth but global leadership in next-generation challenges. It is a kind of “investor’s dialectic” where you carry forward history’s tools but always ask: what next?

For many, the lure is that bridge itself. The reliability of past performance gives credibility; the uncertainties ahead bring opportunity. To stand on that bridge is to acknowledge risk and reward together–not to choose between them. If you understand both Israel’s scars and its ambitions, you start not with fear, but with curiosity. And sometimes, that is what leads to the best investments.

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For over three decades, the spectre of the "Iranian threat" has hovered over Israel’s economic horizon. It was more than just a geopolitical talking point. It was a risk premium built into every investment model, every sovereign bond, every long-term economic forecast. The country has functioned under that shadow. Now, Israel’s decisive military action is viewed by markets as a long-term stabilizer. Moreover, the perceived success in its confrontation with Iran is likely to reduce the geopolitical risk premium that has long shadowed the Israeli economy. While such assessments may seem detached amid mourning and military tension, they reflect what investors ultimately seek: a transition from prolonged uncertainty to a more defined and manageable risk environment. For capital markets, risk that is addressed is often less dangerous than risk that looms undefined.

One of the defining features of the Israeli financial system is its familiarity with volatility. From suicide bombings in the early 2000s to wars in Lebanon and Gaza, the economy has been tested - and has repeatedly adapted. The market has learned to deal with crises. Though markets tend to react to emotions, they eventually respond to risk and reward. And Israel’s markets, in particular, have learned how to filter out the emotional noise. Compare last week’s missile strikes with the panic of October 7, 2023, when Hamas launched a brutal assault on Israeli civilians. Back then, the stock market plummeted 6.5% in a single day. This time, the opening dip was quickly reversed, and the day ended in green territory. The conclusion? Investors are no longer reacting to every headline. They are evaluating fundamentals - and seeing strength beneath the surface.

Since the beginning of 2025, over NIS 4 billion has flowed into Tel Aviv’s stock indexes. That’s not a fluke. It reflects growing confidence in Israel’s ability to navigate stormy waters. While many retail investors still favour U.S. markets like the S&P 500, there is vast untapped potential for domestic inflows - especially as yields on government bonds remain attractive and geopolitical risk potentially recedes. The bond market, too, is showing signs of stability. Despite heightened tensions, 10-year Israeli government bonds are only down slightly, and longer-dated issues still offer yields around 5% - an appealing rate in a world of uncertain central bank policy. If the geopolitical environment calms, it could pave the way for interest rate cuts, further supporting equity valuations.

Judging by recent developments, the shift isn’t about euphoria of winning the war with Iran - it’s about the recalibration of risk. For long-term investors, the most important question isn’t what the headlines say today, but whether the fundamental risk profile has improved compared to last week. And the answer, according to the data, appears to be yes. That alone can encourage a renewed flow of foreign investment - and possibly a strengthening of the shekel as a result.

Perhaps the greatest strength of the Israeli economy lies in its discipline and long-term orientation. Investors who adopt a measured, forward-looking mindset - rather than reacting to every market tremor - are better positioned to benefit from the resilience that defines Israel’s financial landscape. It is an economy managed by institutions and guided by experience, where decisions are shaped by fundamentals, not fear. In an age dominated by headlines and emotional swings, this steadfast approach offers a rare kind of stability.

The Israeli market has shown time and again that it is not driven by emotion, but by the economic consequences of events. Conflict and loss, while deeply tragic, are not new to this region – and the economy has evolved to keep moving forward even amid uncertainty. History has proven that downturns tend to be followed by recoveries, and that the most enduring opportunities often emerge in the aftermath of crisis. For those with patience and perspective, the Israeli economy continues to signal not fragility, but quiet strength.

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In the aftermath of the October 7 war and the political uncertainty that rocked Israel over the past year, many foreign investors did what investors always do in times of extreme volatility: they ran. Billions of shekels were pulled from the Tel Aviv Stock Exchange (TASE) as war broke out and headlines warned of deeper instability. I remember watching the numbers drop and thinking, “This will take a long time to rebuild.” But here’s the unexpected part – the recovery came much faster than anyone anticipated.

According to recent data from the Tel Aviv Stock Exchange’s research department, since the beginning of the war, foreign investors have flipped from net sellers to net buyers. As of May 2025, foreign investors have injected a net total of over NIS 9.5 billion into Israeli stocks just this year. That’s not noise – that’s conviction.

And it’s not just any stocks. The biggest winners? Bank Leumi and Bank Hapoalim, two pillars of the Israeli economy, saw net foreign purchases of NIS 3.1 billion and NIS 2.1 billion, respectively. Elbit Systems, Israel’s leading defence contractor, also drew significant interest, with foreign investors acquiring more than NIS 1.7 billion worth of its shares. These are not speculative plays, these are stable, cash-generating institutions that reflect confidence in Israel’s core financial and industrial sectors.

You might ask: “But isn’t there still a war? Aren’t geopolitical risks high?” Yes, and yes. But that’s the point. Foreign investors are returning despite the uncertainty. As one senior banker put it, “They estimate that it won’t get any worse.” In markets, that shift in sentiment – when fear subsides enough to allow opportunity back in – is exactly where gains begin to grow.

There’s a realism here. Investors aren’t blind to the risks. Norway’s sovereign fund has made headlines for divesting from some Israeli firms. Political boycotts from parts of Europe remain a threat. And yet, what matters most in the world of money is performance – and Israeli banks, for example, continue to post low provisions for credit losses, growing loan portfolios, and some of the highest returns on equity in the developed world.

Foreign investors know this. And their actions speak louder than their words. Even amid global uncertainty, they are buying up shares in everything from the military sector and cyber security to pharmaceuticals and companies in the food sector.

Personally, I’ve always admired Israel’s ability to endure crisis with a clear eye on innovation and long-term growth. But this moment feels unique. It’s not just resilience it’s resurgence. The numbers on the TASE are not a fluke. They represent a calculated decision by some of the world’s sharpest investors: that this market is underpriced, underappreciated, and poised for recovery.

So why invest in Israel now?

Because when uncertainty turns into strategy, that is where real returns begin. Because the story is no longer about chaos but about a comeback. And because foreign investors, who once would not even take meetings, are now filling their portfolios with Israeli assets again.

I’ve seen the cycles. This one is turning upward. Don’t wait until the headlines change. By then, the best opportunities may already be gone.

Now is the time to invest in Israel.

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In 2023, Israel’s life sciences ecosystem included approximately 1,800 active companies employing around 78,000 people. These companies span fields such as biotechnology, digital health, medical devices, and pharmaceuticals. Although total private investment dropped sharply—from $3.3 billion in 2022 to $1.7 billion in 2023—over $1 billion of that came from foreign investors. That level of international backing, still higher than pre-2019 figures, reflects sustained global confidence in Israeli innovation.

Venture capital-backed deals have become more concentrated, but non-VC-backed investment remains significant, suggesting broad-based interest that extends beyond traditional funding models. Much of that interest is rooted in Israel’s unique ability to fuse high-tech capabilities with cutting-edge healthcare solutions. This includes advances in AI-powered drug discovery, personalized digital medicine, and bio convergence - the integration of biology, engineering, and data science. Israeli companies are also making notable strides in eye and vision technologies, fertility treatments, rare disease research, and neurological care - areas experiencing growing global demand and offering investors early access to high-growth opportunities.

Digital health alone accounts for about 30% of Israeli life sciences firms and exemplifies the country’s competitive advantage. With a robust digital infrastructure and world-leading cybersecurity expertise, Israel is reshaping how healthcare is delivered, monitored, and personalized at scale.

Supporting this momentum is a government fully committed to innovation. In response to the Iron Swords war in late 2023, the Israel Innovation Authority swiftly launched emergency grants to stabilize startups at risk, echoing the successful support strategies used during the COVID-19 pandemic. In 2024, several game-changing initiatives were announced:

• New Startup Fund: Over NIS 500 million will be co-invested with private investors to support early-stage companies.
• YOZMA 2.0: A revival of the original fund that kickstarted Israel's VC scene in the 1990s, this fund-of-funds structure will funnel over NIS 4 billion into Israeli VC firms over five years.
• Nationwide Innovation Centers: Nine new regional hubs will bolster R&D and high-tech employment across the country.
• Expanded Grant Programs: Enhanced Tnufa and Growth Fund support provide a more resourceful environment for startups in every lifecycle stage.

This need became particularly relevant as IPO activity on both the Tel Aviv and U.S. stock exchanges declined in 2023. However, follow-on offerings saw significant growth, with Israeli life sciences companies raising $432 million through secondary offerings in the U.S. - a 66% increase over the previous year. At the same time, acquisition activity remained strong, with 2023 marking the fourth consecutive year that included at least one deal exceeding $500 million.

Currently, many Israeli life sciences companies remain in the earlier stages of development, making private equity the primary route for investment. For public market investors, this may delay opportunities until the companies are listed, but the trend is temporary rather than structural. The strong international interest, particularly from foreign investors who contributed over $1.7 billion in 2023 despite global headwinds, is a clear signal: global players are watching Israel closely and positioning themselves for the long term success of Israeli innovation.

The convergence of Israel’s research excellence, entrepreneurial culture, government support, and global partnerships creates a uniquely fertile ground for investment. Despite geopolitical uncertainties and macroeconomic challenges, Israeli life sciences remain a strategic asset with long-term upside.

Investors - whether institutional, corporate, or private equity - can access diverse, high-potential opportunities across therapeutic verticals, diagnostics, AI health tech, and next-generation medical devices. Importantly, the Israeli ecosystem is not only resilient but adaptive, with a proven capacity to innovate under pressure and pivot in response to global challenges.

While many of today’s Israeli innovation opportunities are still in the private domain, the pipeline of maturing companies suggests that public investment prospects via Israeli stock will yield future successes - and when they do, being informed and ready will be key. The investors who understand the Israeli innovation ecosystem now will be better positioned to seize those opportunities as they emerge into the Israeli stock market.

In other words, in a global market searching for both performance and purpose, Israeli innovation is not just an opportunity - it is a strategic imperative.

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As nations continue to bolster their military capabilities in response to global security threats, Israel's defense firms have positioned themselves as key suppliers of advanced technologies. The sector's rapid growth has been driven by significant investments and government contracts, as well as an increasing reliance on cutting-edge defense solutions. As a result, Israeli military stocks have garnered widespread investor interest, with market analysts projecting further gains in the years ahead.

Elbit Systems: The Titan of Israeli Defense Stocks

One of the most prominent players in this sector is Elbit Systems, Israel’s largest defense contractor. Ranked 22^nd globally in annual revenue, the company has enjoyed a remarkable resurgence in its market performance, especially following the outbreak of war in Gaza. Since August 2024, Elbit’s stock increased sharply, has climbed over 100% and recently reached an all-time high. This surge has cemented Elbit's position as the largest defense company on the Israeli capital market, with a valuation of $17 billion.

The key driver behind Elbit’s success is the sustained increase in defense spending, not only from Israel’s Ministry of Defense but also from Western nations. NATO members and other allies have significantly expanded their military budgets, leading to a surge in procurement contracts for Elbit’s advanced defense solutions. The company specializes in air defense systems, electro-optical technologies, and surveillance systems, all of which are in high demand amid ongoing geopolitical conflicts.

One of the most significant indicators of Elbit’s growth is its order backlog, which has grown to a record-breaking $22.1 billion. This backlog underscores the strong global demand for its products, ensuring sustained revenue growth in the coming years.

Next Vision: The Emerging Powerhouse in Military Tech

Another Israeli company making waves in the defense sector is Next Vision Stabilized Systems, a manufacturer of advanced stabilized cameras for drones. The firm has emerged as one of Israel’s fastest-growing military tech companies, with its stock skyrocketing by over 1,600% since its IPO in 2021. This meteoric rise has propelled Next Vision’s market value to $1.9 billion, making it one of the most successful defense technology firms in Israel.

Investor confidence in Next Vision has been reinforced by recent acquisitions and investments. Significant stakes purchase by an English hedge fund and Israeli insurance giant Clal highlights the company’s strong market potential. Additionally, Next Vision has impressed the markets with its financial performance throughout 2024, reporting a 121% increase in revenue.

Next Vision’s growth is largely attributed to the increasing adoption of drone-based surveillance and reconnaissance systems by military forces worldwide. As unmanned aerial vehicles (UAVs) play an increasingly critical role in modern warfare, demand for Next Vision’s cutting-edge stabilization technology is expected to remain strong.

Other Notable Israeli Defense Companies

Beyond Elbit Systems and Next Vision, there are several other Israeli defense firms that have benefitted from the global rise in military spending. Though they are not publicly traded, their technology is used around the globe.

• Rafael Advanced Defense Systems: Known for developing the Iron Dome missile defense system, Rafael continues to secure high-value contracts from both the Israeli government and international allies. The company’s recent expansion into directed energy weapons (Iron Beam) and AI-driven defense solutions has further strengthened its market position.
• Israel Aerospace Industries (IAI): A leader in military aviation and aerospace technologies, IAI has reported significant revenue growth due to increased demand for its UAVs, missile systems, and satellite solutions. The company’s collaboration with foreign defense ministries has helped it secure lucrative contracts, contributing to its financial success.
• Aeronautics Ltd.: A specialist in UAV technologies, Aeronautics has experienced rapid growth as more nations incorporate drone-based reconnaissance and attack capabilities into their defense strategies. Its recent partnerships with European and Middle Eastern governments have positioned it as a key player in the global drone market.

Geopolitical Factors Driving Growth

The surge in Israeli military stocks is closely linked to geopolitical factors that have reshaped global defense priorities. The war in Ukraine has prompted NATO countries to significantly increase their defense budgets, with a focus on acquiring advanced military technologies. Additionally, the ongoing conflict in Gaza and rising tensions with Iran have led Israel to ramp up its own defense spending, benefiting domestic defense firms.

As global instability persists, military modernization efforts are accelerating worldwide. Many Western nations are prioritizing the procurement of cutting-edge surveillance, missile defense, and cyber warfare systems, all of which are areas where Israeli companies excel. This sustained demand ensures that Israeli defense firms will remain integral to the global security landscape.

Investor Interest and Market Performance                          

The impressive performance of Israeli defense stocks has not gone unnoticed by investors. Institutional investors and hedge funds have increasingly allocated capital to military technology firms, recognizing their long-term growth potential. The Israeli defense sector’s resilience, coupled with its reputation for technological innovation, makes it an attractive option for those seeking stable and lucrative investments.

Moreover, the increasing alignment of Israeli defense firms with international partners has expanded their global reach. Companies like Elbit and Rafael have established subsidiaries and joint ventures in Europe, the U.S., and Asia, further solidifying their presence in key markets.

Future Prospects: Sustained Growth and Innovation

Despite periodic ceasefires and geopolitical shifts, demand for Israeli military technology is expected to remain strong. Companies like Elbit, Next Vision, Rafael Advanced Defense Systems and others continue to expand their production capacities while attracting substantial investments. The nation’s important position as both a battleground for testing and a pioneer in cutting-edge military tech ensures that Israeli defense companies will remain at the forefront of global security advancements in the foreseeable future.

Disclaimer: This information is for educational purposes only. Past performance is not indicative of future results. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee future returns or eliminate risk entirely. Any projections, forward-looking statements, or expected returns are based on assumptions that may not materialize. Investors should conduct their own due diligence and consult with a qualified financial and tax professional before making any investment decisions.

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The prominent credit rating agency Fitch Ratings released recently an overview of Israel's economic outlook for investors indicating a potential upgrade of the country’s credit rating from its current A+ status.
According to the report, the near-term outlook is displaying promising signs of improvement, despite recent market volatility and ongoing geopolitical tensions. The credit agency suggests that Israel's return to budget deficits from previous surpluses will not hinder the further reduction of Israel’s general government Debt to GDP ratios. Before 2022, Israel had a relatively low ratio of 68.9% (U.S. has a staggering ratio of 129% - even higher than Cuba), but Israel budget surpluses in 2022 decreased the country’s debt ratio even further: to 61.6%. Fitch Ratings projected a further reduction in Israel’s Debt to GDP ratio to 57.9% by 2024, which could potentially lead to positive rating action, such as a rating more in-line with “AA’ peers’ ratios.

In fact, Fitch expects the deficits over the next three years to be narrower than those experienced prior to the COVID-19 pandemic. Israel’s GDP grew in 2022 by 6.4%. Although weaker housing and stock markets are anticipated to contribute to a decline of approximately 2.3% in revenue in 2023, Israel's government Debt to GDP ratio is expected to continue its downward trajectory due to robust nominal GDP growth projected at an average of 6.9% over the next three years.

While Israel faces ongoing internal social and political tensions, the passage of Israel’s biannual government budget provides near-term political stability and government effectiveness. However, Fitch Ratings cautions that the advancement of certain policies favored by the governing coalition could exacerbate these strains and potentially influence the country's sovereign rating. In particular, judicial reform has been identified as having the potential to negatively impact Israel's credit profile, depending on its effects on governance indicators and policy outcomes.

As to Israel's capital markets, recent security related developments caused a disparity between economic reality and the capital market’s performance. After an increase of 6.6% between mid-April and mid-May while the coalition and opposition parties began discussing possible compromises, Israel’s stock market experienced a decline of 5.3%, signaling a return of fear among investors after a period of positive momentum. This volatility was primarily driven by security-related statements regarding the Iranian situation made by Army Chief of Staff Herzi Halevi during a conference in Herzeliya last week.

However, not everyone sees the situation as gloomy as some media outlets are trying to portray. In fact, one of the leading Israeli banks, Discount Bank, has recommended to its clients to start gradually increasing exposure to the stocks listed on the Tel Aviv Stock Exchange. The bank cites a reasonably stable economy, relatively cheap pricing of equities, and the belief that some potential risk events, such as the approval of the budget, have already passed. Based on the bank's assessment, the Price/Earnings ratio of the large-cap TA-35 index is 22.1% below its historical median.

Chart: Gap of Weighted Average of Expected Price/Earning vs. the Index’s Historical Median (globes.co.il)

In terms of the local macroeconomic situation, Discount Bank assesses it as reasonable and relatively good in certain parameters. Israel's GDP growth in the first quarter stood at 2.5%, surpassing market forecasts. Positive contributors to this growth include decreased imports, increased service exports, and higher consumption. While some segments may experience a slowdown, the overall data remains reasonably positive despite rising interest rates.

Therefore, the recent developments are giving us reasons to be optimistic. Based on the Israel's near-term economic outlook, there are clear signs of improvement despite market volatility and geopolitical tensions. The projected reduction in the government Debt to GDP ratio, stable governance indicators, and recommendations from financial institutions such as Discount Bank to increase exposure to the local stock market highlight the country's positive economic prospects. While challenges remain, Israel's reasonably stable economic situation and relatively cheap pricing in the stock market position Israel as an attractive investment opportunity.

Sources: Globes, Fitch Ratings

Photo: Credit to Gerd Altmann (geralt)

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A Unique Business Environment

Another aspect of Israeli society, however, is not as widely celebrated in the western world. These are so called collective communities you may know in Hebrew as kibbutzim. Going back to the founding days of the state of Israel, these essentially socialist settlements focused on a communal life. In time, capitalist elements were embraced by the broader society, and the kibbutz movement began to decline. However, it remains present today and continues making its contribution to the Israeli economy.

Some kibbutzim, originally focused on the agricultural sector. Now, they entered the business world by providing products that stretch far beyond Israel's borders. In fact, there are currently 20 multinational businesses operating on kibbutzim today. One such community is kibbutz Yizre'el. Kibbutz Yizre'el is home to Maytronics Ltd, which serves as its main source of income. Maytronics' specialty is development, production, distribution and technical support for swimming pool equipment, specifically robots for cleaning swimming pools. In addition, it produces alarms for protecting swimmers from drowning and other products for treating swimming pool water. Over the years, the company's products have proved to be very successful. Its robots are currently used by approximately a third of public pools. Globally, they are used in almost half of all private pools.

Innovation In Israel In Action

However, this was not always a case. The story of Maytronics originated back in 1982. A member of the kibbutz saw commercial sense in developing cleaning robots in distant South Africa. He pitched this idea to the rest of the kibbutz to buy a patent and develop it further. At the time, the kibbutz was going through a difficult financial situation. Their combined debt stood at around 125 million shekels. In other words, the kibbutz’s total cashflow was not sufficient to pay the interest. Despite this, the members of the community agreed to Hirsh's wild idea, and forged ahead. Twenty years later, the company went public and is currently traded on the Tel Aviv Stock Exchange.

Earlier last month, Mayronics made history by being the first kibbutz-owned company on Israel’s major stock market index (Tel Aviv-35). The TA-35 consists of the country’s 35 largest publicly-traded companies. Kibbutz Yisre'el is still a majority holder of the company, whose market cap is over 5 billion shekels ($1.6 billion USD) in August. To put it differently, the members of the kibbutz share between themselves a whopping 3 billion shekels. Ironically, Yizre'el is one of the last communities that remains faithful to its socialist founding ideology. Regardless of their position within the community, company corporate ladder or level of income, each member gives 100% of his salary to the kibbutz. In return, each member receives a stipend.

The Kibbutz Makes a Bold Choice

Having said all that, the kibbutz came close to losing this vast wealth. One of the world leaders in the industry approached them with an offer to buy a controlling stake. Nine years ago, in 2011, Hayward's offer of NIS 180 million for a 67% stake, an extremely attractive premium.

The Israeli company's valuation stood at NIS 345 million. Not surprisingly, the kibbutz member said no to this lucrative offer after an emotional meeting . Now, looking back, that decision was wise as Maytronics’ value has skyrocketed. Since then, the company's shares ascended by an amazing 2,600%!

Back in 2017 the kibbutz sold 10% of its shares for NIS 235 million. On August 20, 2020 they sold another 3%, raising the total of NIS 385 million from both transactions. Even after reducing their stake to 54%, Yizre'el remains in control of its flagship company.

This recent event has only reminded its owners that they made the right decision not to sell its stake a few years ago. Especially, as two-thirds of its annual profits is distributed as dividends.

Where Maytronics Stands Today

With the summer period being a busy one for Maytronics, as seasonal private pools sales increase, the company must adjust to accommodate incoming orders. However, this year delivered another boost as Coronavirus pushed people to stay at home. This served as an incentive for those who can afford to build a backyard swimming pool. During the pandemic, as stated by Reuters, demand for pools reached unprecedented levels around the globe. Manufacturers and distributors are scrambling to meet a wave of demand as consumers stay at home and avoid the virus.

Consequently, Maytronics has been enjoying a significantly higher level of sales of its leading product, the pool cleaning robot called "Dolphin". Even with a favorable environment like this year, the potential for growth remains high due to the fact that most of the pools remain serviced manually. According to Maytronic's CEO Eyal Tryber, there are approximately 20 million pools globally that do not have robots at all. Therefore, the company remains optimistic as it sees plenty of room for growth. From 32% of the total market share back in 2010, the company has climbed up to 48% last year.

The company has been exporting its products around the world for many years now. Currently, the European market is the largest in terms of revenue generation (45% of total sales last year). The United States is second (39%), and starting in 2011, the market presence Australia and New Zealand (11%) grows at a steady pace.

 Source: Company presentation

The Company Still Grows In Size And Innovation

Maytronics sells hundreds of thousands of "Dolphin" units each year. But, it is not only robots that keep customers choosing the Israeli firm. Alongside its highly efficient device, the company markets its anti-drowning alarm system together with pool covers. The management takes safety issues seriously and sees it as one of the potential engines for growth. Accordingly, Maytronics had to expand its production facilities beyond its plant at Yisre'el. In fact, there are two more plants – one in La Ciotat in France and another one in the Upper Galilee in Israel. This way the company is able to cope with any increase in demand when needed. Finally, Maytronics does not rest on its laurels. They remain committed to continual heavy investment in its Research & Development to keep its cutting-edge advantage over its competitors.

It is fascinating to see, how someone's idea and perseverance in developing a simple product such as a swimming pool robot, could result in a multinational business that currently exports 98% of its products worldwide. And maybe this is why a firm from a small Israeli kibbutz is managing not only to outgrow its local market, but is now the global leader in its industry.

If you are interested in learning how Wise Money Israel can help you invest in companies like this one, please contact us here.

Sources: Reuters, Calcalist, Globes, Ha'Aretz, Hadassah Magazine

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Founded as The SodaStream Co. back in 1903 by W & A Gilbey Ltd., the famous London Gin distiller, its first soda maker was created by George Gilbey. The company first introduced two flavors in 1920 - sasparilla and cherry. By 1955 SodaStream had expanded its distribution introducing 14 new flavors.

In 1979 SodaStream developed the classic Soda Maker, which remained its top product for decades, and with successful television advertising campaigns grew its sales by fifty percent.

In 1985, the Cadbury Schweppes conglomerate acquired SodaStream, operating it as an independent business. However in 1991 SodaStream’s main distributor in Israel, Peter Wiseburgh, established his own company - Soda-Club. The company’s business was not confined to sales only, rather it also developed a new brand of domestic soda-making devices. The Israeli inventiveness proved to be a hit as the company reached foreign markets as far as South Africa and Australia. Eventually, Soda-Club’s success resulted in its purchase of SodaStream. This is how the Israeli company set out on the path to become the world’s largest home carbonation system supplier.

In the early 2000's, SodaStream grew its production to nearly two hundred flavors and developed a global distribution network. However quick growth came at a price as the company ran into financial difficulties. Consequently, this led to its sale in 2007 to Israeli private equity investment group Fortissimo Capital Fund, which appointed Daniel Birnbaum as the CEO. In 2010 the company listed shares on the Nasdaq and six years later also on the Tel Aviv Stock Exchange.

Under the new CEO's leadership, SodaStream rebranded itself as a fizzy water company. The company continued evolving, introducing its first line of natural sodas that contained no artificial colors, sweeteners, flavors, or preservatives.

It provided a healthier alternative to the soft drinks offered by its global competitors. In recent years, the company’s expansion has been credited to focusing on innovative and healthier beverages such as Soda­Stream My Water, SodaStream Caps, SodaStream Free, and other products.

In recent years SodaStream has been running a global marketing campaign that addresses one key message - one reusable Soda­Stream bottle can help eliminate the usage of thousands of disposable plastic bottles.

Advocating for a more sustainable way of life, SodaStream spreads the word that the global plastic bottle pollution issue must be resolved. For the health conscious consumer the company accentuated the fact that SodaStream owners consume 43-percent more water than non-owners and use the sparkling water maker to cut sugary drinks out of their diets entirely.

In addition, targeting green-leaning and health-conscious consumers with messages of excessive use of plastic bottles by global beverage conglomerates is what helped Israeli SodaStream grow from a plain maker of fizzy water into a mammoth worth $3.2 billion.

It is unfortunate to see an Israeli company being taken over by a global corporation and delisted from the Israeli stock exchange, especially since Wise Money Israel has been holding its shares in its client’s investment portfolios. However, the good news is that SodaStream will remain an independent firm within PepsiCo, with its headquarters and operations remaining based in Israel for the foreseeable future. This will allow it to maintain its own brand, expand even further and keep delivering its products to households far beyond Israel. And as for PepsiCo, purchasing SodaStream may prove to be a turning point for its brand which has been struggling for sometime.

cnn.com, timesof israel.com, responsemagazine.com, forbes.com

The post Streams of Soda in the Desert appeared first on Wise Money Israel.