Invest here: Birth pangs of new opportunity
The time to invest in Israel is now, although mainstream thinking suggests that the Israeli markets are less attractive due to the current conflict.
This logic may be driven by existential security concerns of escalation risks with Hezbollah and other regional actors; budget deficits from increased military spending; reduced workforce participation due to reservist duty; pre-war civil divisions and fears over judicial reform; and/or historically high, prewar interest rates.
However, this perspective should be reversed. Each of these concerns offers an opportunity for international investors to realize sizable investment returns in the Israeli markets while simultaneously contributing to the post-war economic rebound.
Despite the initial shock, following October 7, Israelis, Jews, and supporters worldwide swiftly rallied together.
Despite deep-seated prewar societal divisions, Israelis mobilized to support the war effort, with military reservists immediately dropping everything to defend the country in combat. Blood drives, food banks, and other philanthropic services emerged. Israel’s global supporters spearheaded campaigns to ship equipment and supplies to aid the war effort. And Jews globally undertook extra prayers to spiritually support the soldiers and hostages. We experienced the most significant display of Jewish and Israeli unity in at least a generation.
This unity, while largely still present, now requires a shift in focus and energy as the conflict persists.
Speaking with investors, founders, and government officials has made one thing clear: Israel’s primary need is continued trust and commitment in its economy, particularly from foreign investors. The most impactful action global investors can take is to invest in the Israeli economy directly, not through charitable contributions but to invest real dollars into real markets and companies. Thankfully, many investors have answered this call.
Intel, Israel’s stalwart multinational, made a $25 billion commitment to expand its chip manufacturing plant in Kiryat Gat. Bill Ackman and Neri Oxman bought 5% of Tel Aviv Stock Exchange Ltd. Since the beginning of the conflict, 120 Israeli companies have raised an aggregate of over $1.7 billion in private funding from local and global VCs, including Next Insurance’s $265 million, AI21 Labs $208 million, and VAST Data’s $118 million mega funding rounds. And Palo Alto Networks announced its acquisition of two Israeli companies for a combined $1 billion.
For Israel, these deals demonstrate that committed and prudent foreign investors remain steadfast in their investment in Israeli markets. However, their motivation extends beyond emotional desires to help Israel – they recognize the unique investment opportunity that the Israeli markets currently offer.
ISRAEL HAS a history of fostering innovation and economic output after conflicts, with a consistent trend of declining inflation and interest rates following each war since 2003.
Data from the Bank of Israel’s website, analyzed by Unique Investments & Fintech
LP, an Israeli hedge fund, demonstrates this pattern by comparing the consumer price index (CPI) and interest rates after each war’s onset and one-year thereafter:
Second Gulf War (MarchApril 2003): CPI dropped from 4.85 to 2.74; interest rates fell from 8.90% to 4.10%.
Second Lebanon War (July-August 2006): CPI dropped from 3.46 to 0.33; interest rates fell from 5.25% to 3.75%.
Operation Cast Lead (December 2008-January 2009): CPI dropped from 3.80 to 3.77; interest rates fell from 2.50% to 1.25%.
Operation Protective Edge (July-August 2014): CPI dropped from 0.49 to 0.39; interest rates fell from 0.75% to 0.10%.
Israel’s GDP growth rates have also exceeded those of the US in corresponding years.
Following the Second Lebanon War, Israel’s economy grew 6.0% compared to 2.0% in the US and, after Protective Edge, Israel’s economy grew 4.5% compared to 1.7% in the US.
FURTHER, POST-WAR, Israel’s hi-tech sector traditionally grows as a direct result of wartime military innovation. Israeli technological
advancement is fueled largely by an entrepreneurial culture and spirit driven by the necessity of military innovation. This is fostered by certain units’ use of learning models to analyze previous errors, leading to an embrace of failure, thereby creating a culture around adapting to and learning from mistakes.
Currently, many military units are innovating on the fly by ideating, testing, and iterating. In other words, they’ve implemented an agile methodology on the battlefield, which will later translate into efficient and innovative startups in the years to come. There is no reason to expect the growth of this post-war economy to be any different from previous postwar economies.
To invest in Israel, you used to have to be a Zionist. Now, you only need to be a capitalist.
We are all bombarded with distressing images of war, global protests calling for Israel’s destruction, and social media misinformation. These contribute to a sense of insecurity and fear around Israel. However, not everything on our screens reflects reality.
Pre-war investment opportunities remain, and in my estimation, the current war has enhanced Israel’s investment appeal. These opportunities span various industries and strategies.
After the war, a significant influx of money – both domestic and foreign – is expected to enter the Israeli economy, potentially yielding substantial profits for well-positioned investors in the Israeli markets. Projections forecast a more stable investment environment with lower interest rates and a strengthened shekel. Startup valuations in Israel’s hi-tech sector, which primarily caters to the global market, are artificially lower because of the war. And government support to stimulate the country’s post-war rebuild is anticipated to fuel economic growth.
ISRAEL REMAINS the country with – per capita – the most start-ups, the highest expenditure on R&D as a percentage of GDP, the most hi-tech “unicorns,” the most engineers, the second-most venture capital investments, the fifth-most educated population, and the highest birth rate (3.1 children/woman) in the developed world. Geopolitically, anticipation around post-war normalization with Saudi Arabia and expansion of regional peace still exists. And the underlying fundamentals of the Israeli economy remain strong: consistent GDP growth, high overall GDP, a low budget deficit, and an effective civil society.
Zoom out and what you see is a resilient, innovative, and committed workforce eager to overcome recent challenges, backed by strong pre-war tailwinds couched in a stable and proven economy.
As the late Lord Rabbi Jonathan Sacks wrote, “The Hebrew word for ‘crisis’ is mashber, which also means a birthing stool. In Hebrew, crises are not just opportunities; they are birth pangs. Something new is being born. That’s why Jews have survived every crisis in 4,000 years and emerged even stronger than they were before.”
The birth pangs of new opportunities are emerging in Israel.