Can Hong Kong lure Israeli technology stocks to China?

The Hong Kong Stock Exchange, has joined the race for Israeli listings

July 04, 2017 10:13

The Nasdaq technology market in New York has long been the location of choice for Israeli firms seeking to attract overseas capital through initial public offerings of their shares: some 60 firms are currently quoted.

A distant second has been the London Stock Exchange, which has become more significant as the British-Israel tech hub has become more important.

Now these grand dames of Israeli tech face a new competitor in the shape of the Hong Kong Stock Exchange, which has decided to join the race for Israeli listings. The HKSE is an attractive market because of its deep liquidity.

The HKSE has rigorous rules and regulations that largely mirror those of the London Stock Exchange and, for many overseas investment funds, it is regarded as the safer route to buying Chinese stocks, known as “red chips”. It is preferred to directly buying in Beijing, where accountancy and governance rules are less than transparent.

The opening of Hong Kong to Israel companies is a natural extension of the improving trading relationship between Israel and China in the high-tech field. Trade between Israel and the People’s Republic has reached $11 bn. And the suggestion is that innovative Israeli companies looking to do business in Asia might choose Hong Kong over the more established markets.

At first blush this might seem an attractive option given China’s vast surpluses with the rest of the world and the large amounts of cash it controls. But there is a downside. Unlike Nasdaq and the London, the HKSE does not encourage dual listings, whereby shares are quoted both on a foreign exchange and in Tel Aviv.

Moreover, there will be less experience in Hong Kong of valuing Israeli technology, which has a long history in New York and London. Also, the liquidity of Nasdaq and the London markets and simple listing rules have given them a competitive advantage.

Israeli companies might well have reservations about Hong Kong. China is notorious for using its investments in Western firms as route to accessing intellectual property and copying them for the benefit of its own enterprises. Recently, there have been signs Beijing has become less enthusiastic about domestic firms borrowing heavily to buy foreign assets.

My suspicion is that Israeli firms seeking to raise capital through an IPO will continue to favour Western markets. Nevertheless, a new player — which offers access to more Chinese and Asian capital — may prove attractive to the more audacious Israeli innovators.


Alex Brummer is City Editor of the Daily Mail

July 04, 2017 10:13

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