Israel's Economy Is Back on Track

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It has since been joined by HSBC (HBC), Deutsche Bank (DB), and Citigroup (C). The foreign investment has traditionally gone into companies such as Israel Chemicals, Teva Pharmaceutical Industries (TEVA), Bezeq Telecom, Makhteshim Agan Industries, Bank Leumi, and Bank Hapoalim (see BusinessWeek.com, 11/7/06, "Investors Sell Teva after Profit Surge").

But lately, new favorites include Africa Israel Investments and the Delek Group (DK), both with substantial real estate holdings in Israel and abroad, as well as Ormat Industries (ORA), a global leader in the renewable-energy field (see BusinessWeek.com, 11/1/06, "Smart Solutions for Global Warming").

No Exodus

Ironically, much of the panic selling that occurred during the first days of the war in July was by Israeli investors who feared that foreigners would exit the market en masse. When the exodus didn't materialize the market began to rally. While technically classified by international investment banks as an emerging market, the Tel Aviv bourse has not witnessed the volatility of markets such as Russia and India.

Most local and foreign investment banks active in the Tel Aviv market remain bullish even as the market trades at record levels. "We continue to rank Israel as overweight due to the strong economic fundamentals," says Bloch of UBS. That assessment was backed up recently by Tel Aviv-based Leader Capital Markets which predicts that positive macroeconomic indicators will support the market at least through mid-2007. The war took its toll—but not, evidently, on Israel's investors.

Sandler is a correspondent for BusinessWeek in Jerusalem.