The Israeli economy has proven time and again its ability to absorb blows and recover. Last Tuesday, we saw yet another demonstration of this resilience, when following the strike on Hamas leadership in Qatar, the flagship indexes of the Tel Aviv Stock Exchange surged to new highs. The TA-35 rose by more than 1.7%, TA-Tech jumped 1.76%, and the Real Estate Index added almost 2%.
Although the full results and success of the strike had not yet been clarified, local investors signaled their belief in the strength of the Israeli economy. In political science, there is a concept known as “rally ‘round the flag,” which describes the public’s tendency to unite around leadership and the state during times of crisis or war. It turns out that this effect is not limited to media coverage or politics, but it also influences patterns of investment.
Israeli investors these days are channeling funds not only into defense companies, which are the immediate beneficiaries of wartime conditions, but also into real estate firms and companies that symbolize construction, development, and economic growth. Investment in such companies is a declaration of confidence in the resilience of Israel’s economy and society.
Even more striking is the gap between local investors and foreign capital. While last year still showed a positive trend in incoming foreign investment, that momentum has recently stalled and even reversed into decline. Foreign investors are exercising caution, partly due to political and security uncertainty. Against this backdrop, the sharp gains in local indexes highlight the extent to which today’s market momentum is driven by various factors.
The ability of the market to react so positively during a dramatic security event may be the strongest proof of the confidence that has been built here over the years and deepened especially in the past two. Israeli companies, particularly in the hi-tech sector, have shown that they can continue to operate, raise capital, and deliver returns, even under the shadow of war.
Rally ‘round the flag concept also applies to investment strategies
Although not everything is rosy and the challenges remain immense, the rally in the local stock market underscores a familiar lesson from previous wars: “Rally ‘round the flag” is not only a concept in the social sciences – it is also an investment strategy in the Israeli reality of 2025.
The writer is managing partner at Tier-A, a strategic communications consultancy. He advises listed and private companies – in Israel and abroad – on capital markets strategy, branding, IPOs, and crisis management.