(Re)Inventing Israeli Capital Markets: Infrastructure for Growth

Transcription

1 (Re)Inventing Israeli Capital Markets: Infrastructure for Growth Globes Israel Business Conference December 8, 2014

2 From Scarcity to Innovation Paradox of Israeli Competitive Advantage From Vegetarian Schnitzel to Space Industry

3 Israel s Economic Strategy: Leapfrogging ; Government Economic Goals Joint Venture Projects 2013 o Sustainable budget o Knowledge-based Export Surplus o o o International Development Finance Regional Development Finance Initiative Targeted Sector Financial Innovation Lab 2014 o Sustainable growth o Scaling up new capital market credit facilities for SMEs o Economic development: new tools for financial inclusion of people and communities o New approaches to regional development incentives 2015 o Sovereign Capital Fund Established o Expanding PPPs beyond infrastructure o New Models for Israeli export trade 2016 o Debt/GDP 60% o Design and Implement credit facilities for high-tech exports in water, health, and alternative fuels 2023 o Sovereign Capital Fund reaches 5% of GDP o Energy technology/financial hub established o Exporting financial R&D

4 % of GDP Israel is a leader R&D and is able to convert research to patents R&D and patents Expenditure on R&D Triadic patent families (Number per million inhabitants, 2010) Czech Republic Israel Poland Turkey OECD 0 Czech Republic Israel Poland Turkey OECD

5 Israel as a global lab Need Innovative Solutions Local Testing Global Scale Up

6 Capital Market Challenges

7 China Saudi Arabia Indonesia India Jordan* Japan New Zealand Iceland Mexico Malaysia* Tunisia Russia Canada Mongolia Korea Kazakhstan Australia Israel Ukraine Peru Austria United States Brazil Switzerland Kyrgyz Republic Norway Turkey Denmark Poland Chile Morocco Latvia Egypt United Kingdom Sweden Czech Republic South Africa Italy Hungary Slovak Republic France Ireland Lithuania Belgium Greece Argentina Colombia Germany Estonia Spain Finland Netherlands Romania Slovenia Portugal More FDI 2011 Inward FDI Stocks (% of GDP) Regulatory environment may affect investment Israel has a more restrictive than average regulatory regime for an OECD nation FDI RR Index¹ Closed = 1; Open = NON-OECD average 0.30 Israel OECD average Notes: ¹ Incorporates restrictions up to September *Preliminary scores. Sources: OECD Statistics, IMFand Worldbank. Ireland and Switzerland omitted to facilitate scaling 2012 FDI RR Index (Closed = 1; Open = 0) More Open

8 Regulatory and business environment may dampen investment Gap in Global Opportunity Index Components from mean for Industrial Countries

9 NASDAQ Shenzhen GreTai Saudi Korea IMKB Shanghai NYSE Taiwan Japan Deutsche Spanish BM&FBOVESPA Australian TMX Group London Japan Oslo Thailand NASDAQ OMX NYSE(Europe) Budapest Swiss MICEX / RTS India Hong Kong Athens Johannesburg Warsaw Singapore Tel Aviv Egyptian Malaysia Mexican Wiener Indonesia Tehran Philippine Colombia Santiago TSE exhibits relatively low liquidity TSE is 30 th among exchange turnover ratios 250% 200% 150% 100% 50% 0% Source: Milken Institute, 2013

10 TASE vs. other markets The rate of change in turnover and market value at TASE and in comparison groups December 2009-December 2012 (%) Turnover Turnover normalized to market value Tel Aviv Stock Exchange World average Developed markets Emerging markets average average Average of similar stock markets Market value Source: World Federation Of Exchanges, Bank of Israel adaptations

11 Market capitalization Shekels Billions (2012 Prices) 1,800 1,600 1,400 1,200 1, Reforms to equalize capital gains taxes Israel and abroad, 2003 MSCI reclassification, Government Bonds Corporate Bonds Stock & Convertibles Source: Milken Institute, 2013

12 Bank loans, GDP and long term saving - Israel 2020 forecast: the long term saving balance is 60% greater than GDP and banking credit Long Term Saving (Insurance,Pension & provident funds) Billions (NIS) Credit in the Banking System Billions (NIS) Israel GDP Billions (NIS) 2020E ,870 1,165 1, Source: GDP and credit - economic department forecast. Yearly 8% increase of Long term saving (according to perennial average)

13 Billions ($) A sharp decrease in the activity of the most significant market participants Local institutional investors Investments abroad VS Israeli Equities in total investment portfolio 21% 19% 17% 15% 13% 11% 9% 7% 5% Foreign investment funds Holdings of TASE equities

14 Overseas investments global trends Share of overseas investment as a % of total investment in equities by pension funds % 57% 54% 48% 45% 29% 24% 35 % Average of 6 benchmark countries 50 % Source: BOI, Towers Watson, UBS.

15 Billions of NIS (2012) Prices TASE Stock Market trading volume Declines after flight of passive investors MSCI Upgrade Sources: TASE

16 Israel s low free float in global perspective Percent S&P FTSE MIB Index DAX CAC TA25 TA25* Source: TASE.

17 Highly concentrated stock market Percent of total companies on TASE Other companies = 30% Big ten firms (with Teva) = 30% Teva = 30% Source: TASE.

18 Business groups' share of stock market capitalization by country 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Masulis et. al. 2012; Sokolinski, 2012.

19 Investment Opportunities Folding layers of pyramids Real-financial separation Deleveraging

20 Competition Enhancement Committee Recommendations Separation of real and financial holdings Flattening of pyramid structures Allotment of public assets

21 Market Performance: PE Ratio Comparisons

22 Schematic elements of new platform

23 Conclusion: Creating a roadmap Think globally Financial Reports in English Compliance with FASB Integrate foreign investors into regs Use international financial metrics Shelf offerings for institutional Distribute research Leverage US-based ETFs Build pre-ipo pools Increase volume and value Attract tech launches and restructurings Authorize BDCs New platform Authorize early stock offerings Leverage TASE as step to world markets Lower cost of registration Less regulatory requirements Subsidize analysts initial coverage

24 Evaluation of solutions by criteria