2024-03-18 04:24:18
In a world where almost every Israeli is invested in Nasdaq and the S&P 500, and the public has a portfolio of holdings of hundreds of billions of dollars in American securities; where a series of Israeli companies are traded in the US at the same time; With billions of dollars of investments flowing into Israel from the US every year – the financial ties between the two countries seem almost inseparable. But we must not be confused. Restrictions imposed by an American president hostile to Israel could cost the public dearly.
A glimpse of the possible restrictions was given last February, when the US imposed a presidential order on several Israelis who, according to American officials, were involved in activities against Arabs in the territories of Judea and Samaria. The decision drew a quick and severe reaction from the banking system. This is the tip of the iceberg in the list of sanctions that a president can impose in the event of a crisis Acrimonious relations between the countries, including restrictions on trading in American assets and provisions against Israeli companies.
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A threat to the dual societies
The first possible damage may be to Israeli high-tech. Today, it is where the bulk of the profit from Israel’s activities vis-a-vis the US comes from. In 2023, venture funds made investments here to the extent of only 7.3 billion dollars – a 60% decrease compared to the previous year and a low of several years. It must be remembered that the Americans always profit more from these investments, which lead To establish companies, some of which will become technology giants and operate mainly from the USA. Israel can look for an alternative to venture capital funds from the Far East, but this will be a challenge that will take years, and it is not certain that these investment volumes will be achieved.
In the capital market sector there are the dual companies. The Israeli legislator went out of his way to allow them to register for trading on the Tel Aviv Stock Exchange alongside the Wall Street exchanges, while providing extensive concessions. They report according to the American reporting method and in the English language. The large technology companies that have grown here in recent decades preferred an IPO in New York and gave up the additional listing in Tel Aviv, possibly due to pressure from the American side. The technology giants that originated in Israel are successfully traded on Wall Street, including the website construction giant Wix, which is currently worth $8 billion, or the renewable energy company Solaredge, which is trading at a value of $4.3 billion.
The 39 companies in the Tel Aviv index have a combined value of about NIS 290 billion, a considerable amount. This is almost 30% of the value of all companies in Tel Aviv. Among the prominent names are giants such as the utility software company Nice, the pharmaceutical giant Teva and the security systems company Elbit systems. Damage by a hostile government to the registration of these companies could be costly for the local stock exchange, which is also very limited in its trading activity compared to America.
The dependence of the local capital market on its American counterpart is mainly for the growth of Israeli companies. The differences in size are self-evident, and for illustration: the average turnover of shares in the Tel Aviv Stock Exchange amounts to about 2 billion shekels per day, that is, about 550 million dollars. The daily trading turnover this week on the NASDAQ stock exchange alone amounted to approximately 413 trillion dollars. Even if one large stock, such as Microsoft, is isolated, the daily trading in it is approximately 9.6 billion dollars – 17 times that of the entire Tel Aviv Stock Exchange. Therefore, the liquidity of Wall Street is always Beat that of Tel Aviv.
The public in Israel invests in the US by following the major stock indices. One of the savings channels that have grown in the last year is linking the pension or provident funds to the S&P500 index, which includes the largest companies in the US and jumped by 24% in 2023, and will continue to rise this year. According to the Bank of Israel, in 2023 the investments of Israeli residents abroad amounted to NIS 788 billion ($215 billion), in deposits, stocks and foreign bonds. This is 15.5% of the total portfolio of assets held by the public (NIS 5 trillion), and in the absence of segmentation Officially, it can be assumed that a significant part of the amount is invested in the USA, possibly even most of it.
Beyond that, the pension funds and provident funds have non-marketable investments in various assets in the US, mainly real estate. Properties and Building, for example, owns the HSBC tower in New York, now known as 10 Bryant Park, whose value has plummeted in recent years due to an acute crisis in the Manhattan office market. Public Electra Real Estate invests in funds of residential housing clusters in the USA. Investments by Israeli companies in the US may become complicated if the government imposes restrictions on them and freezes them. There may be difficulty in realizing the assets, which will affect the companies or the pension portfolio. This is an extreme scenario that seems unlikely today, but this is the essence of local dependence on investments in the US.
Israeli businesses have already suffered financial costs as a result of entanglement in affairs in the US. Among the most famous was the Bacdating affair at the beginning of this millennium, in which senior managers of high-tech companies retroactively changed the date of granting the options they received, so that their exercise would yield maximum profit. The Americans punished the various companies, not only the Israeli ones In one of the famous cases, Combers suffered heavy costs due to a negative correction of its results, which led to its collapse. The founder Kobi Alexander fled the threat of the law to Africa for many years. The entanglement of the Israeli banks in the previous decade, in what the US system perceived as aid to tax evasion, led to fines in the billions of shekels. The case of the sale of painkillers in the US dragged Teva into years of legal wrangling and compensation payments. But these cases were nowhere near a head-on collision between Israel and a hostile president in the White House.
25 BVI companies
The economic ties between Israel and the United States have existed since before the establishment of the state. American Jews helped establish the Zionist Enterprise, and in 1928 they purchased a large amount of land in the Kariya region in the north and founded Gab Yam, to this day one of the largest yielding real estate companies on the market, trading at a value of 6 billion shekels.
And our capital market has also contributed to great America, even if it is several tens of billions of shekels, a negligible amount in terms of terms. In 2008, when the financial world collapsed after the collapse of the Lehman Brothers investment house, capital market people from Israel came up with an idea: to get American companies to raise bonds in Israel to finance their activities. This is how the BVI (British Virgin Islands) model was created, where the companies were registered in a tax haven. The company receives a portfolio of properties in the USA and assumes Israeli law, and in the process takes on debt in the form of bonds from the public in Israel. In practice, most of them were real estate companies of Jewish families, who “made aliyah”. The model worked partially, and there were companies that collapsed over the years. The Tel Bond-Global index still includes 25 bonds of BVI companies, which have an aggregate debt of NIS 12 billion to their holders.
The financial ties between Israel and the US have been getting tighter and tighter in recent decades. A proactive attack on them by the administration in Washington will almost certainly produce a financial crisis in Israel. There are not many alternatives to the American capital market, on the other hand, the local capital market has its own strong activities and institutions, and is capable of withstanding major tests. One This is evident, for example, in the issuance of government bonds, which increased greatly during the war and generated high demand.
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