Israel has a close economic relationship with the European market. The European Union is Israel’s largest source of imports (34.5 per cent) and its second largest export market at 26.1 per cent. There has been a surge in collaboration on high-tech programmes and research and development.

But despite mass lobbying on behalf of the start-up nation, last week investors rejected Israel’s application to join the Morgan Stanley Capital International European index — MSCI Europe.

The decision has cost the Tel Aviv Stock Exchange (TASE) up to $2 billion, according to Ester Levanon, chief executive of the TASE.

She said: “We have been trying very hard to be part of MSCI Europe. We’re stuck in the Middle East — surrounded by Arab countries that don’t want to trade with or invest in Israel.

“Israel is close to Europe and so much of our business is done there.

“If we joined MSCI Europe it would make it much easier to have more foreign investment in Israel. The influx would have increased by $1-2 billion.”

Ms Levanon, who joined the TASE over 25 years ago, rejects economic grouping according to geography.

“It makes more sense to divide by a developed or an emerging market,” she said in reference to Israel being recognised as a developed market by MSCI in 2010.

“Our gross domestic product (GDP) is much closer to Europe, and in many cases, we are growing faster than Europe. Israel should be part of the European panel.”

But a MSCI spokesperson disagreed: “The majority of international institutional investors that participated in the consultation do not consider the MSCI Israel Index to be part of their European investment opportunity set — hence, are not supportive of its inclusion in the MSCI Europe Index.

“MSCI will continue to include the MSCI Israel Index in the MSCI Europe & Middle East Index.”

Nevertheless, Ms Levanon is determined to increase business with European investors by extending the TASE’s trading hours to 17:25 from Monday through Thursday. The change came into effect this week.

She said: “By aligning TASE trading hours with those of leading European exchanges — we believe it will promote higher trading volume, encourage arbitrage trading by local and foreign investors and improve liquidity.”

Ms Levanon revealed that the decision to extend hours was inspired by the UK. “London opens at 8am because of the European market. If London can adapt, then so can Israel,” she said.

Israel’s only stock exchange, which currently boasts 521 companies, presents initial public offering (IPO) opportunities for businesses.

“Companies can only rely so far on banks — especially medium-sized companies because the big ones can find their own solutions,” said Ms Levanon.

“The stock exchange gives innovative companies venture capital — but it can take years to tell whether you will succeed or not.”

Even with 132 high-tech companies on the TASE, from biotechnology to IT services, Ms Levanon “would like to see more high-tech companies on the exchange.”

She is encouraging domestic and foreign investors to put their capital into companies based in Israel.

“They should be part of the Israeli success — and so should Israelis. Why invest outside? We have a country to invest in here.”

But is it too risky to invest in Israel with the unpredicatable situation in the Middle East? “No. Even during the 2006 war with Lebanon, we saw growth in the Israeli economy.”