Profit fell, but foreigners swarmed: The bank stock that attracted big money this week

Sometimes the market teaches us a counter-intuitive lesson: a company shows a drop in profit, and investors flock to buy. This is exactly what happened this week with Bank Hapoalim, which stood out at the top of net purchases by foreign investors on the Tel Aviv Stock Exchange with 96.2 million shekels, and closed the week with a 2.13% gain.

Before we explain why, a brief reminder: "net purchases" are not the total volume of trades, but the difference between what was bought and sold. The number presented represents the surplus of buying, serving as an indicator of foreign optimism regarding a specific stock.

Bank Hapoalim opened the banks' reporting season with a net profit of about 2.5 billion shekels and a return on equity of 15%. These are strong figures, but this time they came with a twist: profit fell by 2.1% compared to the corresponding quarter. After years of record profitability, this was the first reminder that the favorable wind that had been blowing at the banks' backs is starting to change.

The reasons are clear. The first is the interest rate: the Bank of Israel is in the middle of a reduction cycle, from 4% at the beginning of the year to 3.5% in July, with two more cuts expected. A low interest rate erodes the profit the bank derives from the gap between loans and deposits, and the financing margin indeed fell from 2.9% to 2.7%. The second reason is the special tax imposed on banks, which deducts about 950 million shekels a year from Bank Hapoalim. Were it not for this tax, the return on equity would have crossed the 16% threshold.

Bank Hapoalim's stock rose only about 9.9% this year, while the TA-35 index jumped by about 15.7%. In other words, concerns about interest rate cuts were already priced into the stock, and it traded at a price perceived as relatively cheap. When a report shows that the bank is still a well-oiled profit machine with a growing credit portfolio, improving efficiency, and high credit quality, foreign investors see an opportunity.

There is another incentive: the board of directors approved a distribution of 1.244 billion shekels—half of the quarterly profit—in cash dividends and share buybacks. For a foreign investor looking for stable yield in a falling interest rate environment, a strong bank that distributes generously is exactly the right recipe.

Beyond Bank Hapoalim, foreign money continues to flow into chips and technology. Tower Semiconductor took second place with 50.1 million shekels, benefiting from the incessant global demand for chips in the artificial intelligence era. Teva completed the trio with 30.2 million shekels, continuing the gradual recovery of the pharmaceutical giant.

Following them are Palo Alto, the cyber giant, with 25.8 million shekels, and Nice, the software manufacturer, with 25 million. Pay attention to the overall picture: three out of the five largest purchases are global technology stocks, reflecting how foreigners currently prefer exposure to international sectors over a direct bet on the local economy, with the exception of Bank Hapoalim at its attractive price.

Bank stocks are among the heaviest weights in the Tel Aviv indices, and they sit in almost every pension, provident, and advanced study fund. Part of this dividend flows quietly into your long-term savings. However, it is worth noting the market's caution: investors are already looking ahead, pricing in the fact that every additional interest rate cut will squeeze margins.