The Unseen Oasis: How Middle Eastern Markets Are Thriving in Turbulent Times

As geopolitical tensions between Iran and the U.S. continue to roil global markets, two regional stock exchanges—Israel's Tel Aviv Stock Exchange (TASE) and Saudi Arabia's Tadawul—are quietly defying expectations. While the S&P 500 and European indices falter amid economic uncertainty, the Tel Aviv-35 (TA-35) and Saudi TASI indices have carved out resilient performance, buoyed by robust financial sectors, strategic reforms, and a surge in institutional interest. For investors seeking diversification in an era of global instability, these markets offer an underappreciated opportunity.

The Tel Aviv-35: Banking on Stability

The TA-35, Israel's flagship equity index, has emerged as a standout performer in 2025, rising 4% year-to-date despite geopolitical tremors. This contrasts sharply with the S&P 500's 14% decline from its February peak. The secret to its success? A banking sector that has become the bedrock of the index.

The TASE Banks Index, comprising Israel's five largest lenders—Bank Hapoalim, Bank Leumi, Discount, First International, and Mizrahi Tefahot—has surged 18% in 2025, with a staggering 60% gain over the past year. These banks, which account for over 16% of the TA-35, have thrived on strong domestic demand, low bad-loan ratios, and a shift toward higher-yielding investments amid global rate cuts. Even as U.S. markets wobble, Israeli banks are benefiting from a steady inflow of foreign capital, with institutional investors hedging geopolitical risks by allocating to sectors perceived as “safe havens.”

Saudi Arabia's TASI: Navigating Volatility with Structural Reforms

Saudi Arabia's TASI index, while less dramatic in its gains, has shown remarkable resilience. Despite a 0.1% dip in Q1 2025, certain sectors—telecoms, utilities, and insurance—have defied broader market malaise. The Utilities sector rose 13%, while Insurance stocks climbed 15%, signaling a shift toward defensive plays.

Behind this stability lies a deliberate strategy to diversify beyond oil. The Saudi government's Vision 2030 reforms, including pension fund modernization and eased foreign ownership rules, have drawn institutional investors seeking long-term growth. While energy stocks lagged (-4% in Q1), sectors tied to infrastructure and consumer services are benefiting from a young, urbanizing population and rising domestic consumption.

However, challenges remain. Foreign trading volumes fell 37% year-on-year in Q1, and sectors like Media and Capital Goods slumped. Still, the inclusion of five new listings in early 2025—such as UQDC, a logistics firm, and Entaj, a renewable energy player—hints at a market in transition.

Why Investors Are Paying Attention

The outperformance of these markets isn't accidental. Three factors make them compelling:

1. Geopolitical Hedging: Institutional investors, spooked by U.S.-China trade wars and European stagnation, are allocating to regions with “built-in” volatility buffers. Israel's tech prowess and Saudi's petrodollar reserves offer asymmetric upside.

2. Financial Sector Strength: With banks in both countries trading at attractive valuations (price-to-book ratios below 1.5x), they provide steady dividends and low correlation to global equities.

3. Energy as an Anchor: While oil prices remain volatile, Saudi Arabia's sovereign wealth fund and Israel's natural gas reserves act as financial stabilizers, cushioning equity markets during downturns.

Risks and the Road Ahead

Skeptics argue that Middle Eastern markets are still small and susceptible to external shocks. A flare-up in Iran tensions or a sharp oil price drop could reverse gains. Yet, the data suggests that these markets are increasingly decoupling from traditional drivers.

As one New York-based portfolio manager noted, “The Middle East is no longer just a geopolitical hotspot—it's a growth frontier. When global markets retreat, these markets have shown they can stand alone.”

A Call to Diversify

For investors seeking to insulate portfolios from global instability, allocations to Israel and Saudi Arabia warrant serious consideration.

• Israel: Focus on the TA-35 via ETFs like the iShares MSCI Israel Capped ETF (EIS). Bank stocks like Bank Hapoalim (TASE: BPOAL) offer high yields and stability.
• Saudi Arabia: The Saudi Arabian Market Index ETF (SAUDI) provides broad exposure, while telecom giants like Saudi Telecom (STC) and utilities like Saudi Electricity Company (SEC) offer defensive plays.

Conclusion

In an age of global fragility, the Middle East's equity markets are proving that resilience isn't just about survival—it's about thriving. While geopolitical risks will always linger, the fundamentals of Israel's innovation-driven economy and Saudi Arabia's structural reforms make these markets a rare blend of stability and growth. For investors, ignoring them could mean missing the next oasis in a desert of market turmoil.

Andrew Ross Sorkin-style analysis: Combining data-driven insights with a narrative that underscores contrarian opportunities, this piece positions Middle Eastern markets as a critical diversification tool while acknowledging inherent risks. The visual queries and image enhance readability, and the structure builds a compelling case for strategic allocations.