Foreign investors are pulling back from Israeli stocks as appetite for banks collapses
Foreign investors made just NIS 2.7 billion in net share purchases in the first nine months of 2026, down nearly 70% from a year earlier, while bank stocks swung from a major source of inflows to a major source of outflows.
Foreign investors are becoming increasingly distant from the Israeli stock market. Over the past 12 months, they purchased shares worth just NIS 400 million ($131 million), 18 times less, or 95.5% less, than the volume of shares they bought on the local stock exchange during the corresponding period.
The trend is being driven, among other factors, by uncertainty surrounding the Knesset elections scheduled for October 27. An overseas investment banker who works with foreign investors told Calcalist this week: "Conversations with foreign investors suggest that an election victory for the current administration would lead to continued turmoil that would not benefit the Israeli economy; consequently, investors abroad are looking to reduce their exposure, at least temporarily."
The picture was completely different a year earlier. Exclusive data from the Tel Aviv Stock Exchange obtained by Calcalist reveal the extent to which foreign investor behavior has shifted over the past year.
During the first nine months of 2026, non-residents made net purchases of approximately NIS 2.7 billion ($885 million) in Israeli shares, compared with about NIS 8.9 billion ($2.92 billion) during the same period in 2025. In other words, within a single year, net foreign purchases fell by more than NIS 6.1 billion ($2 billion), a decline of nearly 70%.
The cooling trend was also evident in September alone. Foreign investors made net purchases of only about NIS 70 million ($23 million) in shares, compared with approximately NIS 215 million ($70 million) in September 2025.
The change becomes even more striking when the final quarter of 2025 is taken into account. Foreign investors sold shares worth NIS 2.3 billion ($754 million) during the final three months of last year. As a result, over the past 12 months, foreign investors effectively increased their holdings by only about NIS 400 million ($131 million), a negligible amount in stock market terms, compared with purchases totaling NIS 7.2 billion ($2.36 billion) during the corresponding previous period.
Sharp drop in appetite for bank stocks
Beneath the aggregate figures, a fundamental shift is underway in arguably the most pivotal sector of the Israeli stock market, banking. For foreign investors, bank stocks serve in many ways as a proxy for the growth prospects of the Israeli economy.
Foreign investors have effectively gone from being major buyers of bank stocks to major sellers. Between January and September, non-residents sold a net NIS 4.9 billion ($1.61 billion) worth of bank stocks, compared with purchases totaling NIS 6.7 billion ($2.2 billion) during the same period last year. That represents a swing of approximately NIS 11.6 billion ($3.8 billion) in foreign investor behavior toward the sector in a single year.
In other words, while banks were a primary destination for foreign capital entering the stock exchange in 2025, they became a major source of foreign outflows in 2026.
September alone signaled a sharp cooling, even though foreign investors remained net buyers of bank stocks during the month. They purchased NIS 142 million ($47 million) worth of bank shares in September, compared with approximately NIS 615 million ($202 million) in September 2025, a drop of about 77% in net purchases year over year.
That figure is consistent with the account of the overseas investment banker who works with foreign investors and spoke with Calcalist. According to the banker, appetite for Israeli bank stocks has declined sharply in recent weeks, driven in part by political uncertainty ahead of the elections.
The insurance sector has also been significantly affected. After purchasing NIS 1.21 billion ($397 million) worth of insurance stocks during the first nine months of 2025, foreign investors have since become net sellers, offloading NIS 84 million ($28 million) worth of shares.
The cooling of foreign investment has not been uniform across the market. Technology stocks, for example, attracted more than NIS 4 billion ($1.31 billion) in foreign investment during the first three quarters of 2026, compared with NIS 2.5 billion ($820 million) during the same period last year, an increase of NIS 1.5 billion ($492 million).
Foreign investors also sharply increased their exposure to real estate stocks, making net purchases of NIS 2.1 billion ($689 million), compared with just NIS 600 million ($197 million) during the corresponding period last year.
The shift was also reflected in the performance of bank stocks during the final two weeks of September. Over that period, Leumi fell 3.7%, Hapoalim dropped 4.6%, First International declined 3.7%, Mizrahi Tefahot fell 3%, and Discount fell 3.7%. In total, approximately NIS 15 billion ($4.92 billion) was wiped off the market value of the four banks.
More foreign trading, but less foreign investment
The decline in foreign investment is particularly notable because, in recent months, the stock exchange has succeeded in achieving a different goal: significantly increasing foreign trading activity in Tel Aviv.
Since the beginning of 2026, the exchange has shifted from a Sunday-through-Thursday trading schedule to a Monday-through-Friday schedule, seeking to align its trading week more closely with global markets and reduce the gap with international investors.
A study by the Israel Securities Authority found that the move significantly increased activity on the new trading day. Average turnover on Fridays reached approximately NIS 2.6 billion ($852 million), compared with about NIS 1.3 billion ($426 million) on Sundays before the change. At the same time, the share of foreign investors in total turnover surged from 15.3% to 38.2%.
Even after adjusting for the general increase in trading volumes, the Authority estimated that the shift to Fridays increased turnover on that day by nearly 60%.
But higher trading activity does not mean that foreign investors are increasing their exposure to Israeli stocks. While they are trading much more heavily on the exchange, hardly any new foreign capital has flowed into the market this year in net terms.
The distinction is important. Trading volume measures the amount of money changing hands, not whether investors are increasing or reducing their overall holdings. Foreign investors can therefore account for a growing share of trading while simultaneously reducing their net exposure to Israeli stocks.
The shift to Friday trading has improved accessibility and liquidity for foreign investors. But those investors are also using that accessibility to sell existing holdings.
For the stock exchange, that can still translate into higher trading activity and revenue. For the Israeli market, however, it does not necessarily represent an inflow of new capital.
The difference between foreign investors and local market players is particularly striking in bank stocks. For foreign investors, bank shares are viewed as a play on growth in the Israeli economy.
According to stock exchange data, in September, long-term savings managers, including pension funds, provident funds and insurance companies, made net purchases of approximately NIS 655 million ($215 million) in bank stocks. Mutual funds purchased another NIS 266 million ($87 million).
The picture is even more pronounced year to date. Pension and insurance entities made net purchases of bank stocks totaling roughly NIS 2.47 billion ($810 million), while mutual funds bought another NIS 3.7 billion ($1.21 billion).
In other words, while bank stocks declined during the second half of September and foreign investors were cooling their exposure to the sector, local institutional investors were increasing theirs.
The data do not establish that Israeli institutional investors were the specific buyers of the shares sold by foreign investors. They do show, however, that there was still significant domestic demand for bank stocks even as foreign investors pulled back.
Israeli corporations are selling even more
Foreign investors are not the largest sellers in the market this year. The most striking figure in the stock exchange's breakdown appears in the "Israeli Resident, Corporate" category, which recorded net sales of approximately NIS 16.5 billion ($5.41 billion) in shares during the first nine months of the year.
The category covers Israeli corporate accounts that do not fall into separate classifications such as pension and provident funds, insurance companies or mutual funds. It may include companies managing proprietary trading portfolios, known as nostro accounts, companies with cash reserves and investment portfolios, and other financial entities.
The volume of sales is nevertheless significant. Unlike the activity of institutional investors, foreign investors and mutual funds, the "Israeli Resident, Corporate" category encompasses a wide range of trading patterns. These are typically sophisticated investors whose activities can include strategies ranging from short-term positions to long-term investments and holdings.
The NIS 16.5 billion ($5.41 billion) in net sales by Israeli corporations since the beginning of the year raises questions about the identity of the sellers and their motives.
Possible explanations include profit-taking following sharp stock market gains, algorithmic trading activity such as arbitrage and exposure management, and the sale of significant holdings by corporations and insiders. Another possibility is a shift toward foreign markets, driven by a desire to diversify risk and take advantage of opportunities overseas.
At the same time, mutual funds, institutional investors and portfolio managers remain net buyers of Israeli stocks.
According to stock exchange data, corporate selling was concentrated primarily in the technology sector. These investors also sold foreign funds and ETFs. By contrast, they remained net buyers of bank stocks since the beginning of the year, although they did sell bank shares in September alone.
A rally driven by a handful of stocks
The cooling of foreign and corporate capital flows is occurring in a year when the major Israeli stock indexes are still posting positive returns.
As of the end of September, the TA-35 index had risen 16.8% since the beginning of the year, while the TA-125 had climbed 11.9%. The TA-90, however, fell 3.6%, and 67 of the 126 stocks in the TA-125 posted negative returns.
This means that the market's gains this year have been driven by a relatively small number of large-cap stocks rather than by the broad-based rally seen last year.
That marks a significant contrast with 2025. Last year, the indexes saw a much broader rise, while foreign investors poured billions of shekels into the market and increased their exposure, particularly to the financial sector.
This year, the stock exchange has succeeded in increasing foreign participation in trading by shifting to Friday sessions. But foreign investors themselves are no longer the same driving force behind demand.
Nissan Avraham, an analyst in the stock exchange's research unit, said: "Throughout 2026, we see a clear, continuing trend of the Israeli public increasing its exposure to the local stock market. Data from the Stock Exchange indicates that the bulk of capital inflows is coming via mutual funds, which recorded net purchases of approximately NIS 8.4 billion ($2.75 billion) since the beginning of the year, alongside portfolio managers, with net purchases of about NIS 3.1 billion ($1.02 billion), and pension funds, provident funds and insurance companies, with net purchases totaling approximately NIS 4.5 billion ($1.48 billion). Private investors are also continuing to increase their exposure to the local capital market, with net purchases of around NIS 2.8 billion ($918 million) since the start of the year."
