"Foreign investors are a very important element for the Israeli economy, and are one of the biggest bases for our development. Beyond that, collaborations create many more opportunities and this should not be underestimated for a moment. The greater the confidence foreign investors have in Israel, the greater the number of deals there will be," Phoenix Holdings (TASE: PHOE) CEO Eyal Ben Simon told Globes editor-in-chief Naama Sikuler at the Globes Israel Business Conference.
Ben Simon explained "In recent months, we’ve seen a decline in Israel's (level of) risk. For many years, we lived in a bubble and didn’t think there was an enormous risk all around us. Ever since the change in trend in the war in Lebanon, Israel's risk premium has fallen. It hasn’t decreased to zero, but there is a decrease. The most important thing is to ensure that we will be protected from a security point of view. Only after that, will we be able to talk about investments." Ben Simon's remarks followed the handsome returns on the Tel Aviv Stock Exchange since the start of 2024, with the TASE performing better than Wall Street, and significantly better than the European and Asian markets.
"In recent months, we maneuvered to bring billions of shekels to Phoenix shares (referring to the sale of Phoenix shares by foreign funds Centerbridge and Gallatin).The Phoenix is one of the best ambassadors of the State of Israel in the world. It affords a very large expression of confidence in Israel because the Phoenix is actually an option for investment in Israel. When I look at foreign investments in Israel, and Bank of Israel Governor Prof. Amir Yaron said it, without security there is no economy. It's also true the other way around, but it starts with security."
According to Ben Simon, most of the change has taken place since September. "Because risk has begun to fall, we’re starting to see a return of foreign investors and an upsurge in the capital market. A month ago, a foreign investor told me that the economic value of Los Angeles is $1.25 trillion. The Israeli economic value is $530 billion, and there’s no reason in the world that Israel should not be the size of Los Angeles. There is an extraordinary level of human capital in Israel. As Shimon Peres once said, the Jews brought to the world a dissatisfaction, a desire to improve and do better, [and] entrepreneurial people. This culture does not exist anywhere else in the world, and it is very appealing and attractive. Israel is democratic and has a rising demographic."
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Too much regulation, but Israel’s potential exists and is positive
Still, what worries foreign investors and harms Israel is "The security reality, along with the fact that there have been five or six election cycles here in just a few years. There’s also the problematic regulation in Israel. For example, in our context, there are three supervisors: the Capital Market Authority, the Securities Authority and the Bank of Israel. Add to that the Budgets Department at the Ministry of Finance, and the Competition Authority – and each one has the right to veto. Take the example of Harel-Isracard. After everyone confirmed [the acquisition], the Competition Authority said ‘no,’ and the deal fell through. A foreign investor does not want to enter this sort of reality, and a change must be made.
However, Ben Simon believes that Israel has potential and that it is positive. "Israel is priced low, the multipliers here are less than half of those in America, even though the market here has good financial depth by a large margin, compared with the rest of the world."
During Ben Simon's interview, the audience was asked which index in Israel has shown the highest return this year. In first place is the retail index (48%), followed by finance (36%), gas and oil (31.5%) and real estate (21%). Ben Simon noted, "The Israeli economy returned to consumption spending after the first difficult quarter of the war. Most of Shufersal's shareholders, for example, are the public, pension-holders, and they therefore profit."
Believes financial stocks will continue to soar
Financial stocks have recorded increases in recent months, and Ben Simon believes this is just the start. "In the US market, the total value of the financial players, the companies that are traded, such as banks, insurance companies, and asset management companies, is $4 trillion. The division of value between banking and non-banking entities is 50/50. But in Israel, the combined value of all the financial companies is NIS 260 billion, while all entities that are not banks are only worth about NIS 45 billion, less than Bank Leumi or Bank Hapoalim alone. It won’t always be this way, there is still a long way to go for rises in financial shares. Financial investors understand this."
Ben Simon is aware of how complex it is to understand insurance companies financial reports, noting that, "Up until two years ago, no one understood what this animal called an insurance company is. We did significant work to clarify this and talk about clear indicators. It generates a very large value and the market sees that."
On the question of why the public still has not switched from bank deposit savings to savings in investment houses and insurance companies, he says, "Israel has only existed for 75 years. It’s impossible to expect that a process that took 30 years in America will happen here in a matter of weeks. And by the way, Israel will exist for thousands of years more, I have no doubt."
"Another reason for staying with banks is that interest rates have risen. When interest rates fall, people switch to the best yield. But more than that, after closing management fees, our interests align completely with the client. Our performance is their performance. With banks, there is a conflict: the bank is interested in giving the client as little as possible, and the client is interested in getting as much as possible. In Israel, this hasn’t happened yet, but in other places the world, consumers are going to financial institutions."
"Budget offers no hope"
Regarding the state budget, which is in the process of being approved, Ben Simon said, "There are political constraints that are really not easy and I don't envy anyone in the government. The fact is that the budget approved is already good. But I would build it differently, with a much broader horizon. We need hope in the state budget and I didn't see hope in it. The public needs to see that they are looking 10 years ahead, or even 50 years."
Ben Simon did not specify what he meant, hinting that "Much more hope is needed, and the people who make these decisions understand what is meant by ‘hope in the budget.’"
On fears of political interference in investments by institutional investors, Ben Simon was adamant, explaining, "Institutions invest for their savers. Not for the state. Institutional investors are loyal to their savers: pensions and financials. If this changes, it will be a catastrophe. We must not cross this threshold," he warned. "But beyond that, there is no doubt that Phoenix has a clear interest in Israel succeeding, because all our customers are domestic. That is why investing in Israel's infrastructure improves the situation of both the Phoenix and the savers. But it’s clear that if there are better investments in Israel – that is what we will do."
The Globes Israel Business Conference is held in collaboration with Bank Hapoalim and The Phoenix Holdings, and is sponsored by El Al, Bezeq, Nespresso, Wolt, Dell, the Israel Medical Association, Energean, the Jewish National Fund, BlackRock, Playtika, Meta, Strauss Group, BAZAN Group, and MSCI, with the participation of Mekorot, The Port of Ashdod, and the Israel Innovation Authority.
Published by Globes, Israel business news – en.globes.co.il – on December 8, 2024
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