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Palestine Securities Exchange a Bright Spot in Equities

2012-02-23

An article by Ms. Sara Hamdan, writer for International Herald Tribune- Global Edition of the New York Times.

New York Times — The stock market that has most consistently ranked as a top performer in the Arab world over the past few years has not been that of Dubai or Cairo, but the Palestine Securities Exchange in Nablus on the West Bank. During the Arab Spring uprising last year, the financial crisis in 2008 and the regional boom year of 2005, the exchange outperformed most regional rivals as listed Palestinian companies reported hefty profits in spite of ongoing political struggles.

Analysts say investor interest in public Palestinian companies has grown over the past two years, with many new listings on the exchange at a time when initial public offerings have remained at a standstill elsewhere in the Middle East. New venture capital funds are investing in companies in Palestinian territories that have turned profits despite the challenges of their operating environment.

“Strong stock market performance proves that these Palestinian companies are well managed, resilient and adaptive,” Fayez Husseini, manager of Abraaj Capital’s $50 million Palestine Growth Capital Fund, said by telephone. “Markets have been turbulent in other parts of the Mideast recently — Egypt, Tunisia, Bahrain — so in terms of regional investment these days, the Palestine stock exchange is a top pick among fund managers.”

Amid the political and economic instability that swept the Middle East and North Africa last year, the Palestinian market ranked second, behind Qatar, as the best performing regional exchange, falling only 2.58 percent over the course of the year. That compared with 2011 losses of 11.7 and 20 percent for the markets in Abu Dhabi and Bahrain — two oil-rich Gulf neighbors.

“The ‘Arab Spring’ type risks already existed in Palestinian territories, it’s already priced in and there’s nothing new for investors to take into account,” said Eric Swats, head of asset management at Rasmala Investments in Dubai. “When you look at big companies there, you see that they are not just doing well in business, but growing.”

“Palestine is so far off the beaten track,” Mr. Swats added, “that you can discover hidden gems, which could mean big returns for investors.”

In 2008, as the financial crisis unfolded, the Al Quds index of 12 leading shares of Palestinian companies dropped only 16 percent, compared to 55 percent losses in the Morgan Stanley index of Arab markets and 54 percent losses in the Morgan Stanley index of emerging markets, according to data from the Portland Trust, a British organization that promotes peace and stability between Palestinians and Israelis through economic development.

In 2005, the Palestinian exchange ranked as the best performing market in the world, with its Al Quds 12 rising more than 300 percent in spite of regional instability, according to the trust.

The exchange has 46 listed companies and a market capitalization of about $2.5 billion, with the telecommunications firm PalTel, Bank of Palestine, and Palestine Development & Investment Co. featuring as heavyweights. Last year it had the most initial public offers in its history, with seven new listings including Wataniya, a telecommunications provider, which was its largest initial public offering since 2000, said Ahmad Aweidah, the exchange’s chief executive.

“Last year was very difficult for the Arab world with the revolutions in other countries, but much worse has happened in Palestine and investors know this and issuers know this,” Mr. Aweidah, said by telephone from the West Bank. “Many of the companies are in defensive sectors like telecommunications and pharmaceuticals, areas that people can’t do without, no matter what crisis is going on.”

For a young market, established only in 1995, analysts say its impressive track record is important and serves as a sign of a stabilizing economy.

“It may be a tiny market, but we trade on it every couple of months and there’s definitive talk of it being included in the Morgan Stanley frontier MSCI index, which will encourage a number of other funds to look at this market as well,” Jonathan Auerbach said by telephone from New York. He is managing director of Auerbach Grayson, a brokerage firm specialized in international trading, with access to more than 500 of the biggest global institutional investors.