The World’s Experts Keep Predicting Israel’s Collapse. The Markets Disagree.

Since October 7, predictions of Israel’s decline have become almost routine.

According to much of the international commentary, Israel is on borrowed time. The country is supposedly facing diplomatic isolation, economic decline, mass emigration, and the slow unraveling of its social fabric. Read enough headlines and you could be forgiven for believing that Israel’s future has never looked bleaker.

Yet there is one group that appears unconvinced: investors.

As someone who has spent the last two years living through this war while studying international political economy, I have noticed a striking contradiction. There seem to be two entirely different conversations taking place. One happens in newspaper columns, university lecture halls, and social media debates. The other takes place in financial markets.

One predicts decline.

The other continues to put real money on a different outcome.

In recent months, the shekel has strengthened to some of its highest levels in decades, trading below three shekels to the US dollar. International institutions continue to project economic growth. Venture capital continues flowing into Israeli technology companies. Global firms continue acquiring Israeli startups.

The underlying fundamentals remain striking. Israel’s technology sector accounts for roughly 20 percent of GDP, approximately 50 percent of exports, and around 11.5 percent of employment. For a country of fewer than ten million people, it has become one of the world’s most concentrated hubs of innovation.

For a nation that many commentators insist is collapsing, investors seem remarkably willing to risk billions of dollars on the opposite outcome.

Why?

The answer reveals an important lesson about international political economy: markets do not invest in headlines. They invest in expectations.

Currencies, stock prices, and investment flows are not simply reflections of current events. They are forecasts about the future. When investors buy Israeli assets, they are not voting on today’s politics. They are making a judgment about what Israel will look like five or ten years from now.

And despite the war, many continue to like what they see.

The reason begins with people.

In February, Palo Alto Networks announced its acquisition of Israeli cybersecurity startup Koi in a deal reportedly worth approximately $400 million. Founded only two years earlier by veterans of Israel’s Unit 8200 intelligence unit, Koi had raised roughly $48 million before its acquisition. One of its founders, Amit Assaraf, is the son of police officers. While commentators around the world continued debating Israel’s economic future, one of the world’s largest cybersecurity companies was making a nine-figure bet on Israeli innovation.

Koi is not an isolated success story. Despite the war, Israeli startups have continued attracting billions of dollars in investment. Global technology firms continue viewing Israeli talent as strategically important, particularly in cybersecurity, artificial intelligence, and defense technology.

This is the asset investors are betting on.

Not headlines. Not hashtags. People.

Across Israel, the sons and daughters of teachers, police officers, immigrants, soldiers, and civil servants continue transforming technical expertise into globally competitive companies. Israel’s greatest natural resource is not oil, gas, or geography. It is human capital.

In a country of fewer than ten million people, Israel has the fourth-highest number of Nasdaq-listed companies in the world, behind only the United States, Canada, and China. Investors are not betting that Israel is free of problems. They are betting that it remains unusually effective at producing solutions.

Much has been written about Israel’s military capabilities and geopolitical challenges. Far less attention is paid to the country’s extraordinary ability to convert human capital into economic value. Military intelligence units produce highly skilled engineers and entrepreneurs. Universities generate cutting-edge research. Venture capital connects ideas to global markets. The result is an innovation ecosystem that continues to produce world-class companies despite extraordinary uncertainty.

Investors understand this.

They also understand something else: institutions matter.

Governments come and go. Coalitions rise and fall. Political crises dominate news cycles. Yet markets often place greater weight on central banks, legal systems, universities, and private industry than on the latest political controversy. Strong institutions provide confidence that countries can weather periods of instability and emerge intact.

According to OECD data, Israel invests 6.3 percent of its GDP in research and development, the highest rate in the world, and more than double the OECD average. That investment helps explain why investors often see beyond immediate crises and continue focusing on the country’s long-term capacity for innovation.

Israel has repeatedly demonstrated this capacity. Investors have watched the country weather the Second Intifada, the global financial crisis, the COVID-19 pandemic, and multiple rounds of regional conflict. Time and again, predictions of lasting decline were followed by recovery and growth.

This does not mean the optimists are entirely correct. The costs of the war are real. Reservists have spent hundreds of days away from their jobs and families. Small businesses have struggled. Housing affordability remains a serious challenge. Government spending has surged. Social divisions have deepened.

These realities should not be minimized.

But markets distinguish between short-term disruption and long-term capacity. Investors are not asking whether Israel faces difficulties today. They are asking whether Israel will remain innovative, productive, and globally connected tomorrow.

Increasingly, their answer appears to be yes.

The gap between public narratives and market behavior should give us pause. Financial markets are not moral arbiters, and they are certainly not infallible. They do not measure justice, suffering, or the human cost of war. But they do aggregate the judgments of millions of people whose money is at stake.

When billions of dollars consistently move in the opposite direction of the dominant narrative, it is worth paying attention.

Perhaps the more interesting question is not why investors keep betting on Israel.

It is why so many commentators remain convinced they should not.