While much of Wall Street is fixated on how US-China trade wars could now impact the tech sector, few have given thought to the potential winners in the event of a prolonged dispute. The number of Chinese financial firms investing in Israel’s tech sector has nearly doubled from 18 in 2013 to 34 last year, which could set the stage for China surpassing the US as the largest investor in the leading Israeli tech sector.
- Israel’s tech sector has become increasingly attractive for Chinese investors, especially in the face of lingering trade wars with the US
- Israel’s Free Trade Areas and its major exports make it less likely for the country to be disrupted in any significant way
- Many Israeli industries and startups are drawing a lot of attention from Chinese investors
China’s deleveraging drive has triggered liquidity issues for some corporates, although investors feel such businesses may be expanding too aggressively and using too much
leverage at the listco/major shareholder levels. Credit spreads ballooned after defaults by non-SOEs CEFC and DunAn but have been broadly stable since mid-June, at 220- 230bps for 3y AA bonds and 215-220bps for 1y AA bonds, despite recent defaults by Zhongrong Shuangchuang and Wintime. A-share PE is down to 1 SD below the post-
2015 mean. Seemingly, stocks and bonds are partly discounting tighter liquidity resulting from credit defaults and stock pledging. A turnaround could come if the government adjusts deleveraging policies in light of a developing trade war andfaltering economic data.
If China has domestic defaults, the entire world (Israel included) will likely get hit hard