Opinion
Foreign investors are back, but without certainty – it won’t hold
Resurgent interest from international investment funds signals a potential turning point for Israel’s economy. However, securing a consistent and long-term inflow of foreign capital hinges on the government’s ability to establish economic and political stability.
The judicial reform and raging war of the past two years have significantly curtailed the inflow of international capital into the Israeli economy. Now, early signs of a rebound are emerging—major investment funds are once again exploring deals, and foreign investors are gradually increasing their exposure on TASE. The key question remains: Is this the beginning of a sustained recovery, or merely a short-lived spark that could quickly fade if the government fails to provide what investors value most—a sense of certainty?
The exodus of foreign investors has taken a heavy toll on multiple sectors of the economy. With few exceptions — most notably cybersecurity, which continued attracting investment after October 7 — the influx of foreign capital into Israel has slowed dramatically compared to the beginning of the decade.
However, renewed activity is evident. Leading international private equity firms, including Blackstone, Apax, Gallatin Point, and Centerbridge, are assessing major transactions in Israel, such as the potential acquisition of credit card company CAL. Meanwhile, American venture capital firms, including Sequoia and Greylock, have recently returned to the Israeli market. Initial signs of recovery can also be traced on TASE, with foreign investors injecting hundreds of millions of NIS into large-cap stocks in recent months.
After experiencing sharp declines, the Israeli market became increasingly attractive to funds seeking investment opportunities at discounted prices. Furthermore, there is a growing perception that, at least in the short term, the geopolitical situation is stabilizing to some extent, providing investors with a renewed sense of confidence to reengage. Moreover, Israel continues to maintain a competitive edge in various high-tech sectors, particularly cybersecurity, defense technology, fintech, life sciences, and AI — all industries that have historically drawn, and are expected to continue drawing, foreign capital.
Nevertheless, despite these encouraging signs, it remains too early to determine whether this trend is sustainable. Political and regulatory uncertainty continues to be a significant deterrent, particularly as judicial reform efforts regain momentum, growth-driven budget approvals face hurdles, and the prospect of further political instability lingers. This unpredictability makes long-term investment decisions increasingly complex.
Israel’s credit rating presents yet another challenge. Downgrades by international rating agencies have heightened the perceived risk of investing in the local market. As a result, major institutional investors, including pension funds and sovereign wealth funds, remain reluctant to commit capital to Israel.
Additionally, despite strong employment figures, the Israeli economy is grappling with a high-interest-rate environment, inflation hovering around 3.8%, and the ongoing financial burden of the costliest war in the nation’s history.
These challenges weigh heavily on investment decision-making, raising concerns that the returning foreign capital will be largely tactical and short-term rather than the deep, long-term commitments needed to drive sustained economic growth.
To ensure that the revival of foreign investment is not fleeting, the government must act decisively and promptly. Investors crave stability, and nothing deters them more than economic mismanagement, inefficient resource allocation that stifles growth, and erratic shifts in policy. If Israel fails to project a clear message of certainty, the very investors currently reconsidering the market may withdraw at the first sign of renewed instability.
Beyond stability, Israel must actively incentivize investment. Competitive tax reliefs, grants, and regulatory support for foreign investors can make Israel a more compelling destination. Without proactive measures, more aggressive incentives offered by competing markets will inevitably draw capital elsewhere.
Improving Israel’s credit rating is equally critical. The government must restore confidence among international rating agencies, proving that the Israeli economy is a secure and viable environment for long-term investment. Institutional investors assessing Israel’s risk profile need more than reassurances—they need concrete evidence that the country is committed to financial and political stability.
And, perhaps most importantly, security cannot be taken for granted. Investors are back because they believe the security situation is under control. Yet any deterioration could once again drive foreign capital away. In an unpredictable security environment, investors will not wait to see how events unfold—they will simply redirect their money away.
The return of foreign investors to Israel is an encouraging sign, but it is far from a triumphant "return to Zion" of international capital. A true and lasting recovery depends on Israel’s ability to provide the one thing investors value most—certainty.
Without clear, decisive action, foreign capital will not just slow—it will retreat. And if that happens, Israel risks finding itself once again isolated from the global economy at a moment when it can least afford it. This is a defining crossroads for the Israeli economy, and the choices made now will determine whether foreign investors stay—or vanish once more.
The author is a managing partner and Head of the Corporate and M&A Department at Epstein Rosenblum Maoz (ERM) Law Firm.
