Haggai Ravid, CEO of Cukierman & Co. Investment House, marks the key trends in investments in high-tech for 2019, and relates to the impact of the trade war on Israeli high-tech, the recovery in Europe, the growing market in China, the changes in the emerging markets and the popular areas in technology investments.
The US: Markets Are No Longer Troubled by the Trade Wars
What most likely affected investments this year and will continue to do so next year is the trade war between the US and China. The US foreign trade policy towards China and the rest of the world is characterized by a separatist approach, yet the markets have become “accustomed” to the threats of the trade war and this trend is expected to continue. Despite the belligerent statements, we have seen that things are very fluid and statements often change from a fight to reconciliation, therefore in the end, the market forces will be the ones to dictate the tone. The volume of US investments in Israeli high-tech is expected to remain stable and possibly grow, with preference for merger and acquisition transactions. The trend of listings of Israeli companies on Nasdaq will continue, with emphasis on mature companies. Canada, one of the largest cannabis exporters in the world, is also interested in Israeli technologies in the field.
China – Rise in Investments in Israeli High-tech in 2019
China has reacted moderately to the US policy, and both sides seem to be looking for solutions behind the scenes to bridge the gaps. After the relative slowdown of Chinese investment in Israel over the past two years, there is cautious optimism about next year. Because of the background of the trade war, Israel may be used as the “investment bridge” between China and the US, and therefore there will be more interest from the Chinese side to invest in Israeli technologies. In order to bypass the Chinese government’s regulatory changes in foreign currency investment, Chinese funds are set up to invest in Chinese yuan, opening up new investment channels. In the past two years the Chinese market has matured and has advanced many local start-ups that grew in China. Therefore, in contrast to the past, it seems that the Chinese today are more interested in medicine, advanced production, automation and robotics, fields in which Israeli start-ups are considered outstanding
Europe – Optimism Alongside Risks
Europe will continue to be an excellent market for Israeli technologies, and from the background of the recovery of the continent there is optimism from investors. This year marked the comeback in European investments that nearly doubled in comparison with 2017. However, this may result in reducing Israel’s budget for the Horizon 2020 plan, which is currently under consideration and could harm investments in joint Israeli and European ventures in science and technology. The Europeans are very interested in the fields of water (in the south), automotive, life sciences, cyber security and more. European investors have a preference for companies to move to Europe so that they can receive miscellaneous tax benefits. The low valuations of Israeli start-ups versus their counterparts in the US and Europe also encourages European investors to invest in Israeli technologies in a variety of fields.
Hong Kong – The New Hub for IPO’s in the East
We are expected to see more Israeli companies that will follow the footsteps of Alma Lazers and will also get listed in the Hong Kong Stock Exchange. In contrast to the Chinese market, where there are high multiples, in Hong Kong, the multiples are lower than in the US and Europe, with an average of 7 – EBITDA, but in the future, double-entry is planned for China-Hong Kong and in result the multiples will become higher, therefore we expect to see a long queue of Israeli companies wanting to get listed in Hong Kong.
The Popular Fields in Technological Investments
The popular fields in high-tech for 2019 are: Cannabis – technologies related to growth, development and distribution, automotive, fintech and advanced manufacturing, such as IoT (advanced manufacturing). Growth in AI and ML technologies will encourage start-ups engaged in forecasting in a variety of areas such as finance, real estate, transportation and more. Despite the decline in the value of Bitcoin, the demand for blockchain technologies for other applications will continue to grow from the past year.
Emerging Markets: Will Africa Be the “New China”? And What About the Brazilian Arena?
In the emerging markets Africa is becoming an attractive target and now has significant drive. Foreign investment, especially from China with their new Silk Road Initiative, is expected to continue this year and promote further development in the continent. The interest of Latin America in Israeli high tech is Agri-tech and cleantech technologies for the development of agriculture and water. The close ties between Israel and Brazil after their change of government is expected to encourage investment in Israeli high-tech, and early initiatives in the field are already gaining momentum. For example, the annual Spin Summit investment conference was held in Sao Paulo, and for the first time, Israeli start-ups presented themselves to funds from Brazil and the US.
Cukierman and Co-Investment House is cross-border investments, via a global network.