Global Agenda: Playing with the big boys

Contrary to popular belief, speakers at conferences occasionally raise issues or express viewpoints that are genuinely interesting and important.

By PINCHAS LANDAU
June 21, 2007 21:35
3 minute read.
Global Agenda: Playing with the big boys

global agenda 88. (photo credit: )

June is the height of the conference season in Israel and almost every day brings another gathering of leading lights in one or other industry or sector. Anyone wondering why these shoulder-rubbing jamborees remain such an essential element of contemporary business culture, despite the rapid advance of communications technology, should refer to Adam Smith in his master work, The Wealth of Nations: "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices." This is especially true of trade shows and the like. Conferences, on the other hand, serve primarily as a platform for stuffed shirts from government or the industry in question to mouth inane platitudes with the aim of getting their pictures and a headline in the media. Occasionally, however, speakers at conferences raise issues or express viewpoints that are genuinely interesting and important. One such case occurred on Wednesday at the conference of the Israeli CFO (Chief Financial Officer) Club in Eilat. Most ordinary people don't realize this, but a key element of the function of a CFO, especially in large companies, is to handle corporate analysts from brokerage houses and investment banks and, more generally, to make every effort to keep their company's share price as high as possible. That explains why a panel discussion with analysts from leading foreign investment banks, entitled "The Israeli Economy Seen from the World," was on the program. In this discussion, according to press reports, Merrill Lynch's main Israel analyst Haim Israel raised an issue of great interest to the analyst/ corporate community: Is Israel better off being categorized as an "emerging market" or as a "developed market?" By way of background, it may be noted that Israel has been in a peculiar position for some years now. On the one hand, the Israeli economy is clearly "developed" by global standards. On the other, the Israeli financial markets were equally clearly in the "developing" category until very recently. However, the rapid pace of reforms and development, in the economy generally and the capital markets in particular, have made this anomalous situation increasingly untenable. Last year, for example, the Financial Times reported that the Israeli stock market was being placed under review, prior to a likely upgrade from the "emerging markets" category to the "developed" one. This mirrors the perception of the Israeli market by analysts as "advanced emerging," but there is a dynamic process underway. The recent decision by the OECD to open discussions about accepting Israel as a full member is another, major aspect of this ongoing process of upgrading, both of the economy and the markets. Sounds great, huh? Not necessarily. Merrill Lynch's Israel claimed that being upgraded to developed status would be the kiss of death for the Tel Aviv Stock Exchange, and he is by no means alone in this assessment. The rationale is that it's better to be a middling fish in the relatively small pool of money represented by the emerging markets than a tiddler in the much bigger pool of developed markets. The country's economic success has gained it the status of a "defensive emerging market." Never mind what that means, the result is that the Tel Aviv market plays a useful role in the overall strategy of emerging market fund managers. But if we are upgraded, we will be so small (an estimated 0.2 percent of the developed market universe) that nobody would bother with us at all. Foreign portfolio investment would dry up and the dramatic growth in volume seen on the local bourse in recent years would simply evaporate. This view cannot be dismissed, although it can certainly be debated. One thing to keep in mind is that the global community of emerging market analysts and fund managers have a strong interest in keeping Israel in their arena. However, let's assume they are right. What should we do? Cancel our request for membership in the OECD? Stop the reform process and remain a developing market? The truth is there is no Peter Pan option. You can't stay immature forever. The entire thrust of economic policy is to put Israel on a par with the developed economies of North America and Western Europe. Yes, we're small - but so is Switzerland. Yes, we have a long way still to catch up in many areas - but so do Spain and Portugal. A country has to do what a country has to do - and the money managers will, not for the first time, create a niche to put us in. landaup@netvision.net.il


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