Before you start investing in the Israeli capital market, it is worth taking a few moments to familiarize yourself with some of the basics about the market itself. The Tel Aviv Stock Exchange (TASE) is the only Israeli exchange where stocks, bonds and other Israeli securities are traded. Israeli businesses and the Israeli government come together to issue their equity and debt in the form of shares and bonds. The Israel Securities Authority is the government regulatory body for this market, established in 1968. Much like the Securities and Exchange Commission in the United States, its mandate is to protect the interests of the investing public. Investors, institutions and traders buy and sell on the TASE electronically. Whether established equities or Initial public offerings (IPO), they are both listed on the TASE.
There are 736 public companies listing securities on this single, national exchange. Some of these companies are local corporations with less than 10 million NIS ($2.5M) capitalization, while some are international powerhouses with over $50 billion in market cap, such as Teva Pharmaceutical Industries. Including convertible bonds, there are over 1,000 stocks trading in the Israeli stock market, totaling $800 million in volume. There are also over 130 Israeli companies traded on other exchanges, including the NYSE, NASDAQ, and AMEX U.S. exchanges, meaning investors may purchase Israeli company stocks in their own currency through their own broker or online account. Individual investors can also easily participate in corporate IPOs, which include some of Israel's leading-edge technology firms.
In addition to a vibrant stock market, the Tel Aviv Stock exchange has a highly liquid government and corporate bond market. Here, one can buy and sell bonds online immediately like stocks, with very small bid-ask spreads. Israel Government Bonds and corporate debentures include short, mid and long-term fix-rate, variable-rate, and cost-of-living indexed bonds. Daily bond trading volume is $760 million.
Exposure to Israeli currency
When you buy securities (stocks and bonds) on the TASE, you buy them in Israeli Shekels (NIS). This provides the foreign investor currency diversification. There are other investment vehicles to hedge against foreign currency fluctuations and investment mechanisms to index to a particular currency, such as foreign currency options, futures and forwards.
Other financial vehicles
The Israeli capital market has a multitude of ETFs (Exchange Traded Funds) for both stocks, bonds and stock/bond indexes. You can invest in convertible bonds, Treasury bills, index mutual funds, and stock/bond mutual funds. There are other investment opportunities for the sophisticated investor including derivatives (options, etc.), warrants, futures, forwards, currency ETFs and hedging, structures and commodity ETFs. See our article for a full list of investment choices in Israel.
The TASE's automated exchange system allows for continuous, simultaneous and instant electronic trading by retail (individual) and institutional investors alike. This system ranks with the most advanced trading systems used by the world's leading stock exchanges. Companies listed on the TASE publish their financial reports quarterly online, just like Wall Street. Israeli companies use the International Financial Reporting Standards (IFRS), which is taking over for the GAAP reporting method as the international standard. The individual investor transacts through one of the 28 Israeli financial firms TASE members, which include banks, insurance companies, and investment brokerages. A few of the members are Citibank, Merrill Lynch (Bank of America), UBS Securities Israel, Bank Hapoalim, and Bank Leumi. Both an Israeli and a non-Israeli investor can manage their portfolio independently. You can also opt to have it managed by professional portfolio managers.
Suitability to different types of investors
The TASE has several partners that help to provide liquidity for traded securities. Like Wall Street, the TASE provides investment mechanisms for both long and short sellers, margin account, and leveraged investments. As a result, this market is suitable for the long-term investor, the mid-term investor, swing trader and even day-trader. Since the market is open on Sundays, you get bonus trading hours not offered in most countries.
If you reside outside of Israel for 183 days per year or more, you are exempt from paying Israeli tax on your capital gains, dividends and interest paid. The country of residency of the investor is where the tax would be due. For Israeli residents, there is a relatively low tax rate on capital gains. Current capital gains rates are 15% for adjustable- and fixed-rate bonds and non-inflation-indexed interest. 20% on all other gains (in real-terms, beyond inflation) including stock capital gains, indexed bonds, dividends and inflation-indexed interest income. The rate applies to all holding durations and there is no higher rate for short-term capital gains.
Wall Street investor?
If you are already familiar with Wall Street, you might like to read about some interesting similarities and differences between the Israeli market and the U.S. capital market. Of course, the Israeli capital market is affected by news events, so keep reading Wise Money Israel's news section to understand how these events affect investment in Israel.
To find out why you should invest in Israel, click here.