Jerusalem – The Israeli stock market is failing to attract sufficient investors, Prime Minister’s Office director-general Eli Groner warned on Tuesday.
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“The capital market is in trouble,” he said. “There is no onslaught of investors at the stock exchange, and the Israeli public is afraid of it. Today, most people run to real estate.”
Although the real estate industry is a complex field that typically requires larger sums of money, Israeli investors are flocking to this sector rather than investing in Israeli stock market offerings, according to Groner. Even foreigners are showing very little interest in investing in Israel, he added, addressing participants in the annual conference of the Israeli Association of Publicly Traded Companies, held at the Tel Aviv Stock Exchange.
“We have a problem in the Israeli capital market – it is not sufficiently developed,” Groner said. “We need to further the efforts of all the relevant regulators and companies to make the market more attractive.”
While price-earnings ratios – ratios of company stock prices to earnings per share – and dividend yields demonstrate that Israeli investment opportunities are akin to the booming Wall Street years of the 1960s and 70s, neither local or foreign investors are aware of these circumstances, Groner argued.
Another issue, he explained, is the perception that Israeli stock market investments bear an “insane and unreasonable” risk premium – the minimum amount of money in excess of a risk-free return that an investment will likely yield. Nonetheless, he stressed the importance of encouraging those who have recognized the investment opportunities in Israel, as they will be able to invest and profit before everyone else.
Groner identified several potential explanations for the gap in in valuation, or the method for assessing value of intangible assets like stocks and securities, that currently plagues Israel. One problem may be rooted in the high commission rates associated with the stock market, where people must pay 25% rates as opposed to 10% in the real estate sector, he said.
He also pointed to the Israeli banking system and the excessive regulation of the capital market as likely stumbling blocks toward attracting more investors to the stock exchange.
“Many people are afraid of this institution and think that it is a factory where the rules of the game are unclear, and that there are interests that are not transparent enough or unfair,” Groner said. “On Wall Street, you can meet a lot of people who describe how hard it is today to find investment opportunities, and how easy it was in the 60s, 70s and 80s. I have no doubt that in 15 years they will speak this way about the Israeli market.”
“We all need to act to ensure that this day comes as quickly as possible,” he added.
Israel needs to end its socialized government control over free markets approach if it truely wants to benefit from a capitalist style system. They need less government controls and regulations. And they need to offer fewer government programs and hand outs while lowering taxes.
Every country has its risks, look, Madoff was head of the New York Stock Exchange!!! Who could tell in advance????
Israel has excellent demographics and that alone should make the stock market move up. But more than that is the tremendous amount of development, technology, medicine, etc, coming out of there. This second alone, even without demographics, would enable to stock market to move up a lot.