We believe that potential cooperation between ADIA and the Israeli Citizen’s Fund—Israel’s nascent Sovereign Wealth Fund—would be highly beneficial as the new entity gears up to become operational in 2021, when the government begins to receive tax revenue from the massive Eastern Mediterranean natural gas development. Stronger ties between the SWFs, exchanges and regulators, should also advance regional capital market development.
The appeal of Israel’s Tech Ecosystem—commonly-referred to as "Start-Up Nation"—to contribute to the diversification of Gulf economies should now be even more irresistible to UAE investors, entrepreneurs and innovators. Early-stage Israeli firms, as well venture capital and private equity funds focused on Israeli Tech will likely be major beneficiaries. But equally important—and perhaps not initially as visible—we expect substantial investment flows into Israeli public equities, especially Israeli tech stocks listed worldwide, such as those tracked by the BlueStar Israel Global Technology Index—BIGITech. These stocks, which can also be accessed via index tracking vehicles such as ETFs and index funds, should be the natural “first allocation” by UAE and Gulf investors well beyond the SWFs—including banks, wealth managers and corporate investment funds.
Israeli public tech companies listed worldwide include meaningful exposure to the most dynamic parts of Israel’s innovation ecosystem. This includes AgriTech, BioTech and Medical Devices, CyberSecurity and DefenseTech, all of which are highly-relevant to the UAE’s economy. The relative and absolute historical performance of Israeli Technology Stocks could also be appealing to UAE-based investors.
The Abraham Pact Is Just The Beginning
We believe that the normalization of relations with the UAE will benefit almost all aspects of the Israeli economy, even before “knock on effects” of deeper ties with other Arab states—especially Saudi Arabia—are realized. While the initial deals are likely to focus on direct investment in infrastructure and joint ventures in AgriTech and biotech, the biggest potential windfall will be investment in Israeli capital markets. We anticipate that the full range of investment categories will be the beneficiaries, including VC/Private Equity, the Corporate and Government Bond Market and especially, Publicly-listed Equity which is the natural “first step” for UAE investors, and particularly Israeli Tech Stocks.
If anything, our view might be underestimating the potential of the Abraham Accord, especially in how it will influence the behavior of other Arab and Muslim states. Aside from Saudi Arabia, other significant countries that could eventually normalize with Israel in the coming years include Morocco, Oman, Bahrain, and perhaps even Indonesia, the world’s largest Muslim country.
Regardless of the speed of normalization, we are clearly just at the beginning of the process, and the future benefits to Israel’s economy and markets will surprise even optimists like ourselves.
Steven Schoenfeld is the CEO of MV Index Solutions, a global index provider with more than $19 billion in assets tracking its global equity, thematic tech, fixed income and digital asset indexes as of 31 August 2020. Tzlill Keren-Blum is MV Index Solutions’ EMEA Representative, based in Tel Aviv.