On the eve of Israel’s 78th Independence Day, we can assess Israel’s remarkable economic resilience despite the uncertainty and challenges of recent years. Economies often experience sharp volatility during periods of geopolitical uncertainty, but Israel is demonstrating an unusual phenomenon: continued growth with strong capital markets and currency. The leading Tel Aviv 35 Index is up 19% in 2026 to date (77% in the last twelve months), and the exchange rate is at a low three Shekels per Dollar. Everyone sees Israel’s strong performance, but few understand the reason.
Behind this resilience lies a deep and often overlooked financial foundation: Israel’s domestic institutional capital pools. Over the past decade, assets held by the public doubled to 7 trillion Shekels as the economy grew and productivity increased. Most of these assets are managed by large institutional investors (including insurance groups and investment houses), driven by both mandatory savings and discretionary investments.
Israel’s unique retirement system, for example, requires employees to withhold a significant part of their monthly salary, to be matched by their employers. Employees invest these savings by selecting investment strategies from various institutional managers, who compete for clients based on investment performance and ensure responsible and professional management and transparency. At the same time, wealth accumulation also increased demand for traditional investment products such as mutual funds and ETFs – also managed by these institutional investors. The result is a fast-growing domestic capital pool managed by professional institutional investors with deep local expertise, access to global markets, and a strong regulatory framework.
This capital pool is invested across Israel’s economy, including in infrastructure, technology, and domestic services, in addition to global investments. Long-term household savings are thereby an active engine of national economic growth. In effect, Israel has developed a unique model: a form of national sovereign fund, but one that is not managed by the state. These capital pools are managed by private, competing institutional investors accountable to their individual clients – the citizens of Israel.
In addition to compounding clients’ savings, in times of geopolitical uncertainty this structure proves critical for the national economy as well. Institutional managers have deep local knowledge and capital market experience and are in an excellent position to assess domestic risks and opportunities. Whereas global investors often move capital quickly away from uncertainty, domestic pools can act as a shock absorber – accurately pricing risk and seeking opportunities. As a result, capital markets remain liquid and efficient, effectively pricing uncertainty.
The difference between a resilient economy and a vulnerable one during wartime is not only the severity of the threat, but also the depth of domestic capital available to respond and the resulting volatility in the market. Countries without a broad base of domestic institutional savings rely far more on external financing, leaving them more exposed during periods of stress.
But beyond immediate market benefits, institutional capital pools reinforce confidence. They enable households to keep saving and investing, allow companies to operate and raise capital even under uncertainty, reduce volatility, and improve short-term as well as long-term visibility. They stabilize the present and support future recovery. Israel’s economic resilience is rooted in long-term policy that built strong foundations, but what ultimately drives it are these domestic capital pools, managed by institutional investors. In times of war, they are not just managers of savings, they are a central pillar of Israel’s economic resilience.
David Alexander is Deputy CEO of Phoenix Financial
Source:
www.jpost.com
