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Of shoes and stocks

You know, two stock exchanges just might not be better than one

Walking down the High Street of nearly any major town in Israel, you could conclude that shoe stores are a great business to be in. Shops are everywhere, selling much of the same shoddily manufactured styles at inflated prices.

Is it such a great business? Not really. Margins suck. Several chains dominate sales (though there’s not DSW-like category killer, yet, and Payless has just announced it’s shuttering shops). Inventory carry costs are high.

Is it an easy business to enter? Yes, so I discovered in an informal walking survey of stores from Ra’anana to Ramat Gan. The prevalence of the shoe shop seems second only to hair salons. Both of those businesses feed off a character trait (dare I say, flaw?) in the Israel psyche that if the schmuck across the street can do it, I can do it, too, and better.

Which brings me to the recent news that the city of Haifa is contemplating starting a stock exchange to compete with the incumbent Tel-Aviv Stock Exchange. The new bourse would specialize in technology stocks. The rationale for the move is that Israel is the only country in the world with a single economic center.

The move comes less than nine months after Yossi Beinart left Chicago and the derivatives trading market to take over as chief executive officer of the Tel Aviv exchange with a mandate to make sustainable improvements in that operation.

Everything that has been attributed to the Haifa municipality’s thinking is correct. Tech companies in Israel need more efficient and effective paths to raising money. R&D focused companies, particularly in biotech, need less restrictive processes and rules to issue shares. And, smaller companies should have an alternative to Nasdaq for capital needs. (Listen to TLV1’s Niv Ellis’ interview with former Bank of Israel chief economist Asher Blass who says Israel is fine with just one exchange.)

In other words, they took the recommendations that McKinsey & Company made in a study commissioned by the Israel Securities Authority and said “great idea, let’s do it here”.

Ya’ala, bo.

Does Haifa have some sort of unique competitive advantage? None evident.

Is there a “secret sauce” that’s being cooked up on the Carmel? Unlikely.

Instead, like the would-be shoe store owner, the folks in Haifa are looking at Tel Aviv, with its gleaming new buildings, and saying “if that schmuck can do it…

About the Author
Robert is a financial writer and editor covering the Israel business scene at TLV Strategist and Analytika Research. He's a former editor at Bloomberg News in Tel Aviv, McKinsey & Co. and McDonald & Company Investments.
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