Grounding Israel’s Markets in Fundamentals, Not Headlines
Few countries are as shaped by headlines as Israel. Open any global newspaper, and Israel’s story is usually told through geopolitics, conflict, or security crises. For investors, that narrative often drives two extremes:
Trepidation. Many view Israel’s economy as fragile, always one war away from collapse.
Optimism bias. Supporters see resilience and innovation as proof that Israel can do no wrong economically.
Both perspectives miss the mark. Israel’s economy is neither perpetually at the edge nor immune to risk. The reality is more nuanced: Israel has developed a remarkable ability to absorb shocks and adapt, but not without costs and vulnerabilities.
A History of Innovation and Growth After Conflict
Over the past 25 years, a striking pattern has emerged: Israel’s economy doesn’t just recover from wars — it often accelerates. Inflation and interest rates consistently decline in the year following conflict, while GDP growth frequently outpaces that of the United States.
Economic data highlights this post-war resilience:
Source: Bank of Israel; Federal Reserve
In each case, resilience wasn’t just about surviving. Challenges stimulated growth, fostered innovation, and created economic opportunities in ways that strengthened the economy over time.
Innovation Follows Conflict. History also shows that conflict often sparks new waves of innovation in Israel. The military’s culture of rapid problem-solving frequently translates into entrepreneurial ventures, and we’re seeing this again today: Israeli startups raised $9.3 billion in the first half of 2025, a 54% jump from the second half of 2024. At the same time, concerns remain about over-reliance on defense technology and Israel’s growing global isolation. This cautious optimism underscores both the resilience and the nuance of Israel’s economic reality.
Beyond the Noise of the News Cycle
This resilience is easy to miss because short-term headlines dominate the narrative. For skeptics, every conflict looks existential; for optimists, every recovery looks miraculous. But zooming out tells a different story:
Debt interest burden remains low at 2.5% of GDP (8.1% of spending), well below Israel’s historic highs and lower than the U.S. and OECD averages.
Debt-to-GDP sits around 69%, compared with an OECD average near 90%, meaning Israel entered wartime with a lighter load than peers.
Foreign reserves exceed $200 billion — among the highest globally relative to GDP — anchoring market confidence and acting as a foreign exchange buffer.
Sovereign credit ratings remain investment grade across Moody’s, S&P, and Fitch, despite cautious outlooks, underscoring resilience even in war.
Global government bond issuances in 2024–2025 were oversubscribed ($8B in March 2024, $5B in February 2025), showing global investor demand and confidence.
Taken together, these anchors highlight why Israel continues to command market confidence even under strain: its balance sheet remains stronger than the headlines suggest.
Resilience Isn’t Invincibility
Acknowledging resilience doesn’t mean ignoring risk. Israel’s economy still carries vulnerabilities:
Heavy concentration in the high-tech sector.
Elevated defense spending relative to peers.
Political volatility that can delay or dilute reform.
Growing international isolation and weakening public image.
But for investors, these aren’t reasons to walk away. They’re reminders that resilience coexists with fragility — and that opportunities often emerge from the tension between the two. This is true in all markets and countries.
Why This Matters for Investors
For global allocators, the lesson is clear: don’t let headlines dictate strategy. Israel’s markets are neither too risky to touch nor guaranteed safe havens. Instead, they are dynamic systems shaped by history and adaptation.
That dynamism creates opportunities for investors who can:
Look past headlines. Focus on fundamentals, not just news flow.
Embrace nuance. See both resilience and vulnerability.
Lean on structure. Understand how Israel’s unique capital markets — particularly its transparent bond market — turn volatility into tradable opportunities.
For investors, the challenge — and the opportunity — is to resist both fear and cheerleading, and instead anchor decisions in a grounded view of history, structure, and resilience.
That grounded and informed perspective is what guides our thinking at Kotel.
About Kotel Investment Management: We serve as a bridge between U.S. capital and Israel’s overlooked fixed income markets, sharing insights and perspective through our research and thought leadership.
This content is for informational and educational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any securities.