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Global Interdependence Center & Hebrew University Financial Opportunities in Israel Professor Dan Galai School of Business Administration

Israel vis­à­vis USA The Israeli macro­economic environment is different from the USA’s.

The Israeli financial markets are vastly different from the USA financial markets and institutions.

General View of the Israeli Economy Recession during 2000­2003  Growth of ~5% during 2004­2008  Stable banking system  Separating investment banking activities from commercial banks (The Bachar Committee)  Enhanced regulation of financial institutios 

Major Economic Indicators 2000

2001

2002

2003

2004

2005

2006

2007

2008

GDP- GROWTH 10.6% EXPORT- GROWTH 20.5% IMPORT- GROWTH 12.4% INFLATION RATE 0.5%

1.5% -9.7% -3.7% 2.0%

3.5% 9.7% 11.0% 5.4%

1.3% 6.0% -0.6% -2.1%

5.0% 18.5% 16.0% 1.4%

6.0% 9.4% 10.3% 3.0%

7.2% 8.4% 6.7% 0.2%

5.1% 4.5% 9.6% 3.5%

8.0% 2.7% 3.0% 4.4%

Financial markets in Israel 40% decline in TA25 stock index  20% decline in rated bond prices  Substantial decline in real estate stocks and bonds.  Low yields on government bonds. 

The BOI Interest Rate ‫הריבית במשק בשנה האחרונה‬

4.5 4.25 4 3.75 3.5 3.25 N D J F M Apr- M ov- ec- anJ Jul- A eb- ar- 08 S Oct07 07 08 ay- un- 08 N 08 08 ug- ep- 08 08 08 ov08 08 08

‫‪Dynamics of Stock Crisis‬‬ ‫‪2008and 1994‬‬ ‫??תחזית לשנים הבאות??‬

‫‪Years 1990-4 5‬‬

‫מדד המעו"ף ‪ 5 -‬שנים‬ ‫אחרונות‬

The USA Real Estate Market Sustained growth from 1991  Too low interest rates after Oct. 2000  Real estate bubble up to 2006  Price declines of ~20% so far  How much more?? 

The Case­Shiller Home Price Index

The Israeli Real Estate Market Was depressed from 1996 to 2004  Moderate price increases from 2005 especially in Central Israel (Tel­Aviv, Jerusalem)  Limited inventory of new apartments  “Natural demand” of ~35,000 units and 25,000­30,000 new units. 

Venture Capital in Israel Technological companies account for ~40% of Israeli export.  Major contribution to GDP.  More than 100 technological companies are listed on the NASDAQ. ~20 more on European exchanges.  Teva is now among the 10 largest companies on the NASDAQ. 

Venture Capital in Israel Technological Incubators  Financing by the Office of the Chief Scientist (OCS), the Ministry of Industry  Angels  Venture Capital Funds 

Venture Capital funds More than 50 Israeli VCs  Appr. $500 million were raised in 2008  5­10 active American VCs  Major fields: Communication, Software, Internet, Life Sciences. 

Investments in venture capital $( (billions of Q1­Q2 2007

Q1­Q3 2008

Investment

1.2

1.4

Exits

2.7

1.0

Investment

22.5

21.6

Exits

34.6

21.0

ISRAEL

USA