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Analysts: Israel to be attractive developed market
Author  Reuters

 

Analysts: Israel to be attractive developed market

Deutsche Bank says although Jewish state will be alongside world's richest economies, its growth characteristics will keep more in line with emerging market

Reuters

 

Published: 

05.19.10, 10:28 / Israel Business

 

 

 

Israel will be an attractive investment after its upgrade from an emerging to a developed market this month in the MSCI Index, analysts say.

Deutsche Bank said this week that although Israel will be alongside the world's richest economies, its growth characteristics will keep more in line with an emerging market.

"(Israel) can offer active developed market investors the opportunity to enjoy emerging style growth and performance without having to invest off-index," the bank said in a report.

Index compiler MSCI announced last June it would include Israel in its World Index and its EAFE Index, the third such upgrade in its history.

When the May 27 reclassification takes effect, passive investors in emerging markets will have to sell Israel holdings. It may take time for developed market funds to take their place.

"The Israeli economy is in relatively good shape. For a developed market investor, Israel would be quite an attractive place," said Andrew Brown, an investment manager at British firm Aberdeen whose emerging market fund has about $700 million in Israeli companies.

"These stocks are of relatively good value," he told Reuters. "We will not rush to sell them."

Foreign investors surveyed by Thomson Reuters Extel in March said the biggest challenge to the Israeli market would be the shift from comprising about 3% of MSCI's emerging markets index to some 0.4% of its developed market index.

Fidelity International's Nick Price, portfolio manager of the Emerging Europe Middle East and Africa Fund, said the switch will not have any effect on his fund because of Israel's size.

"I will stay with stocks that I like and I believe that most people will do the same," he said.

 

Top-heavy market

A Citigroup report said $2.8 billion in passive outflows were expected from Israeli stocks with the change – but eventually would be more than offset by inflows of $3.6 billion.

Foreign investors already hold nearly 30% of Israeli equities, mostly in top companies like Teva Pharmaceutical Industries, Israel Chemicals, Bezeq Israel Telecom and the largest banks, Leumi and Hapoalim.

UBS and Merrill Lynch also view the move as a short-term negative with a more positive long term.

The Tel Aviv 25 index hit an all-time high last month of 1,237.85 points, buoyed by strong economic growth. It has eased back to 1,162 with the global decline in stocks.

The country recovered relatively quickly from the global crisis, its economy expanding at an annualized 4.8% rate in the fourth quarter and 0.7% for all of 2009. The central bank predicts growth of 3.7% in 2010.

 

Israel was also invited to join the Organization for Economic Cooperation and Development (OECD) this month.

The Bank of Israel said that while there is a chance of an ebb in passive inflows, in previous upgrades there was no evidence of a significant drop in the volume of investment.

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Start-ups boost big technology cos
Everyone wins when a big company acquires a start-up.From GlobsExactly three years ago, Google Inc. (Nasdaq: GOOG) co-founder Larry Page again took over as CEO, ten years after leaving the position. Eric Schmidt vacated the post to become chairman, and Page began to take the search giant in a new direction. Schmidt, who had been parachuted into the company in 2001 because of investor pressure as a responsible adult to turn the small and bubbling start-up into the corporate giant that Google has become. However, three years ago, it was decided to go back to basics, and not just with a personnel change, in order to give Google the feel and atmosphere of a start-up that it had lost over the years. The idea was to instill innovation, agility, and a faster pace of decision-making in a company with tens of thousands of employees.This was only part of Google's strategy to feel younger and more innovative. In fact, the company is one of the most active buyers of start-ups and technology companies, with over 150 acquisitions amounting to billions of dollars. This method has brought many new faces to Google's departments, and kept its head above the water in a range of fields.Google is not alone of course. Many enterprises in Israel and other countries are trying to bring in innovation through the back door. However big and smart they may be, these enterprises know that not all wisdom is found in the company's corridors, and that there is a need for some smarts and new thinking from outside, either through acquisitions, or more efficiently and smartly through strategic collaborations.Examples are Qualcomm Corporation (Nasdaq: QCOM) and Deutsche Telekom AG (XETRA: DTE). The two giants have shown great interest in tiny Ness Ziona-based Magisto Ltd. and have embraced it. The Israeli company has developed an advanced app for editing video clips directly from smartphones. 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"They know how to make high-speed cameras, but we bring the product that is supposed to be the killer app, which can differentiate between what it sees through the camera, how to take automatic pictures, track the person in front of the camera, and so on."The advantage of big enterprises cooperating with start-ups is the added value and differentiation for their users when the need to answer the question whether our product causes their product to be better and different from other products. They know that they can't do everything in-house."In Israel, too, the same feeling that the lack of innovation can be solved by linking up with start-ups is also understood. For example,Zap Group Ltd. linked up with several Israel start-ups to offer added value to its advertiser clients. 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"We can install the product on our websites and apps and together try and promote the finished product in the world," he says.Lempert says that two successful examples are MobeeArt Ltd., which began as a company for building mobile sites for small businesses, and now develops systems for managing a full digital presence for these companies, and Vcita Ltd., which began as a diary management solution for free professionals, and with the influence of Zap Group developed the product to manage leads for small businesses."The change and development was made at our demand and needs, and these products are now sold in a number of countries. These transactions are win-win for both sides," says Lampert.Who will win smartup2?"Globes", in collaboration with Bank Hapoalim (TASE: POLI) is launching the second annual SmartUp competition for Israeli start-ups. 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Participating companies will receive a start-up package from Bank Hapoalim, including a high-tech account at preferred terms and a NIS 20,000 grant.The three winners will receive assistance from leading Israeli incubators and accelerators Explore.Dream.Discover, 8200 EISP, andNielsen Innovate.Published by Globes [online], Israel business news - www.globes-online.com - on May 21, 2014© Copyright of Globes Publisher Itonut (1983) Ltd. 2014Globes - Everyone wins when a big company acquires a start-up   
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